On May 18, 2016 the Department of Labor (DOL) finalized new rules related to the Fair Labor Standards Act (FLSA), which will impact an estimated 4 million U.S. workers. Workers that were previously exempt employees may become eligible for overtime for the first time.
Effective December 1, 2016 the minimum salary threshold to qualify for the “white collar” FLSA exemption has increased from $455 per week ($23,600 per year) to $913 per week ($47,476 per year). The “white collar” exemption includes executive, administrative, professional, and outside sales employees who are paid on a salary basis.
For employers, this means that beginning December 1, 2016 a salaried employee who earns under $913 per week must be paid overtime pay for any time worked over 40 hours per week or have their salary increased to meet or exceed the new minimum requirement.
Under the new rules the exempt salary threshold will automatically increase every three years.
There are 4 steps employers should take before the new regulations go into effect on December 1, 2016.
- Determine which employees are affected:
Employees currently classified as exempt, but are earning less than $913 per week are affected. Keep in mind that because the exemption will increase every three years, employees paid just over the minimum may become eligible in the future.
- Track the hours worked by the affected employees:
You can’t just assume 40 hours for each employee. By tracking an employee’s hours each period, you may be surprised how much they are working. Our web-based timekeeping solution will reduce the burden of paper time cards and manually calculating hours.
It’s important to tell employees new to tracking their time that it is necessary for compliance purposes and not about micromanaging their time worked.
- Evaluate compensation strategies:
If an employee earns close to $913 per week and is working 40 hours or fewer per week, it may make sense to increase their salary to meet the new exempt level. Doing so will allow you to avoid the administrative burden of tracking the hours worked.
If an employee works significantly more than 40 hours, a decision must be made if the salary will be increased, if the company will begin paying overtime, or if policies will be enacted to eliminate working over 40 hours per week.
For example, Bob works for Company A and his salary is $40,000 per year, but he works 50 hours per week. His new annual earnings with overtime will be over $55,000 a year!
$769.23 salaried rate per week + $288.50 in overtime wages = $1,057.73 per week or $55,001.96 annually.
- Review policies and procedures as necessary:
It is important to review the policies and procedures that apply differently to exempt and non-exempt employees. Some examples include:
- BYOD (Bring your own device)
- Work from home and off the clock work (checking email in the evening and on weekends)
- Bonuses
- Timekeeping
- Travel
If your company is affected by this regulation change and you have questions, Certified Payroll Associates would be pleased to help. Contact our office today!