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Wage & Hour Laws

FLSA Overtime Changes: What Do Employers Need to Know?

Sep 08, 2016

flsa overtime changes

After more than a decade of struggle President Franklin D. Roosevelt signed the Fair Labor Standards Act (FLSA) into law on June 25, 1938. This landmark piece of legislation banned child labor, set the first minimum wage and created the nation’s overtime pay standards.

Since then, the law has been revised only a handful of times—the last in 2004 when President George W. Bush raised the threshold for overtime pay to $455 per week, or $23,660 per year.

Ten years later, President Barak Obama announced that it the time was right for another change. After many months of deliberation, the president, alongside the Department of Labor (DOL), issued a final rule on May 18, 2016 to update the FLSA’s overtime regulations.

And within the first year of implementation, the changes are expected to extend overtime protections to over four million workers.

So what are the new regulations? And how will the the changes affect employers? Let’s dive in and find out.

5 Key Provisions of the New FLSA Overtime Rules

The final rules focus mainly on updating the salary requirements for exempt employees. And there are five key provisions employers need to know.

Not sure how to tell if you should classify an employee as exempt? Check out this blog to learn how.

  1. The law goes into effect on December 1, 2016.
  2. The the minimum salary requirement for exemptions is $913 per week or $47,476 per year.
  3. The total compensation for a highly compensated employee exemption is $134,004.
  4. Every three years the salary and compensation levels will be automatically updated.
  5. Employers can use nondiscretionary bonuses and commissions to satisfy up to 10 percent of the standard salary level.

One important thing to note is that there were no changes made to the duties tests for white collar employee exemptions.

How Employers Can Comply with the Changes

The good news is that the majority of employees who are affected by the changes aren’t working overtime. In fact, only 20 percent report regularly working overtime. The other 80 percent either don’t work overtime or only work overtime occasionally.  

The Department of Labor lists several strategies employers can use to comply with the changes:

Raise Salaries

For employees who meet the duties test and are close to the salary cutoff, a good option is to raise their wages to meet the minimum. As an example, for an office manager who meets the administrative exemptions and makes $43,000 per year, you can raise their salary to $47,476 per year.

Pay Overtime

In some situations, you might have an employee who usually only works 40 hours a week, but will every once in a while work overtime. In this case, you can simply ensure you are accurately tracking their hours and plan to pay the occasional overtime.

Reduce the Workload

If you have employees who are frequently working overtime but are not close to the salary threshold, you might want to evaluate their workload. It could indicate the need for adding additional staff or you may want to redistribute their workload among other employees.

Other Important Things to Keep in Mind

The new FLSA overtime rules are giving employers a lot to think about. And before you make any final decisions, there are a few other things to keep in mind:

Criteria for Exemption

Salary level is only one of the required criteria for exempt status. There are two others: 1) Are they paid on a salary basis? 2)  Do they pass the standard duties tests?

And when it comes to the duties tests, it’s about the work associated with executive, administrative, or professional positions—not the job title. In fact, the DOL’s Wage and Hour Division makes it clear saying, “Job titles never determine exempt status.”

Work Schedules

The DOL also makes it clear that workers do not have to follow a predetermined work schedule. It is still completely up to employers to offer flexible work schedules or telecommuting options.

Time Keeping Methods

While the FLSA requires employers to keep records of the hours employees work, they are still free to choose whichever timekeeping method they prefer. Employers can require employees to punch a clock, or if they want, they can design a different system that will better meet the needs of their workforce.

The Next Step

Once you have everything in place to comply with the new FLSA overtime regulations, don’t forget to inform your supervisors and managers about the changes. They will need to help ensure job descriptions are accurate and that employees are properly tracking their time.

And for extra emphasis, you can offer wage and hour training. The training should cover a wide range of topics in addition to the new overtime rules including:

  • A review of federal and state laws
  • How to properly classify employees
  • Ways to address off the clock work
  • Strategies for accurately tracking time worked
  • How to handle complaints

If you’d like to learn more about our wage and hour training courses, fill out the form on the right to schedule a demo.

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