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How Might the Changes to the Fair Labor Standards Act Affect Your Company?

 Integrity Staffing & Solutions

Undoubtedly, you have heard talk for quite some time about proposed changes to the Fair Labor Standards Act (FLSA).  In March of 2014, in order to qualify more workers for overtime pay, President Obama instructed the Department of Labor to review the elements of the law that allow some positions to be exempted from the overtime pay requirements of the FLSA.

On May 18, 2016, the Department of Labor’s final rule updating the overtime regulations was issued.  The key elements of the DOL rule changes include:

  • The minimum salary has been changed to $913 per week or $47,476 annually for a full year worker.  The standard is set at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census region (currently the South region).
  • The salary threshold will also automatically be revisited every 3 years to reset the minimum salary requirement to the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census region.
  • The Final Rule allows employers to use nondiscretionary bonuses and incentive payments (including commissions) to count towards up to 10 percent of the new salary level.
  • The total annual compensation level for the highly compensated employees subject to minimal duties test to the annual equivalent of the 90th percentile of full-time salaried workers nationally ($134,004).
  • The Department of Labor has not changed the standard duties tests for exemptions.
  • The new rule goes into effect December 1, 2016.

Many employers have been planning their options based on the proposed rule that was released some time ago.  If your organization has not begun the planning process for implementation of the Final Rule, here are some of the things you will need to

  • Identify all employees who are currently classified as exempt and verify they are being paid at least $913 per week ($47,476 per year).  In determining employee pay, up to 10 percent of an employee’s salary can come from nondiscretionary bonuses and incentive payments as long as the bonuses/incentives are paid at least quarterly.  Part-time exempt employees must also be compensated at a minimum of $47, 476 per year as well.
  • Develop a communication plan to disseminate information about the FLSA changes to the organization.  Make employees aware these changes take effect December 1, 2016.  Communicate to employees that the changes could result in changes to company policies and practices as well as to job classifications and compensation structure.  Continue to communicate regularly with employees throughout the pre-implementation period.  It is recommended that separate plans be developed for Managers and the employees.
  • Educate managers on the changes and provide them with the information they need to respond to employee questions and concerns throughout the pre-implementation period.
  • Evaluate the cost of increasing the pay of currently exempt employees who fall below the new minimum salary level to $47,476.  Also calculate the cost of reclassifying these employees to nonexempt and paying them overtime for hours worked over 40.  (You may want to have the affected employees track hours for a period of time to better understand the potential financial cost of moving this group to nonexempt).
  • Evaluate how a change in exemption status may affect employee benefits (changes to time off accrual rates or other benefits).  Also review policies on “off-the-clock” work, meals and rest breaks, travel time, mobile devices.  Be sure all managers receive refresher training on policies and procedures.  Educate any employees who may be newly classified as nonexempt on their obligations for reporting time, etc.

This is not an exhaustive list of the items an organization may need to take into consideration before the December 1, 2016 effective date.  The most important take away is to begin now, communicate clearly and often to employees, and train managers on their responsibilities pre- and post-implementation.

If you have any questions, feel free to contact Integrity Staffing & Solutions at 402-558-2072