The Department of Labor (DOL) announced a comprehensive overhaul to current Fair Labor Standards Act (FLSA) in mid-2015 and confirmed and updated those rules in May 2016. The new rules expand the number of employees considered non-exempt (or eligible for overtime pay) by raising the standard salary threshold from $23,660 to $47,476, a number that will now be indexed to salaries every three years. In addition, the DOL has raised the threshold for highly compensated employees (HCE) from 100,000 to $134,004.
Although the new rules won't officially take effect until December 1, 2016, it is still only a relatively short time to make sure your organization complies.
4.2 Million Reasons for the FLSA Updates
You may be wondering what brought the FLSA changes about. In 2015, the DOL declared there were "five million reasons" for updating overtime regulations. That figure represented the estimated number of workers who would be affected by a rise in the salary threshold. That number was revised to 4.2 million.
Those workers, the DOL wrote, often work many hours above the standard 40-hour work week and are not eligible for overtime because of their exempt classification. The overt reason for the changes stressed by the DOL is the extension of protection to those employees so that their earnings better correlate to total hours worked per week.
Updating Exempt Classifications
The new base salary for exempt employees is more than double the previous base compensation. It will force organizations to take a hard look at affected employees and determine whether it is still appropriate to maintain their exempt classifications.
When the proposed rules were announced in 2015, the Society for Human Resource Management noted concerns from HR professionals about the strain those changes will place on compensation budgets. And there were additional worries about impact on employee morale, noting that reclassification from exempt to non-exempt may be perceived as a downgrade within the organization to certain employees.
Now that organizations have a clear picture of the new rules, they can work to assuage any anxiety among employees. HR can audit employee classifications and determine whether it makes sense to convert employees on the cusp of the new threshold to non-exempt, or whether — for the sake of cost-savings or even improved morale — a salary boost makes more sense. FLSA Overtime Calculators are invaluable tools to measure the financial impact of the coming changes and strategically plan for any necessary workforce alterations.
Preparing Now for Changes Ahead
December 1 may seem like ages from now, but it's likely to sneak up on busy organizations. In order to be best prepared, CHROs should begin analyzing and auditing their current workforce to establish the extent to which the changes will impact their overall organization.
By understanding why the FLSA rules are changing, taking precautionary steps to get ahead of the FLSA changes and then building an appropriate reclassification or salary adjustment plan, CHROs can position their organizations to be compliant and limit the strain on compensation budgets. Regardless of how many additional employees ultimately become eligible for overtime pay, employers should recognize that paying overtime to this segment of workers, who on average are quite expensive, can quickly drive up labor costs. Now is a good time to consider new workforce strategies to shift some of that work to less expensive workers, or even to hire less expensive full time employees.
If employers do not have the right systems in place, they should consider time tracking systems that can proactively alert managers to overtime situations, and can give them the scheduling tools and overtime approval and management capabilities they need to control costs.
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