How should your organization prepare for the changes to the FLSA?
After years of legal wrangling and a change in administration, we may soon see adjustments to overtime exemption rules under the Fair Labor Standards Act (FLSA). On March 7, 2019, the Department of Labor (DOL) released proposed changes to the minimum salary threshold requirements that an employee must earn in order to be exempt from FLSA overtime rules.
Certain workers may be exempt from the FLSA's overtime rules if they receive a predetermined, fixed salary, which is not subject to reductions in the quality or quantity of work. Their salary must exceed a certain threshold (currently $455 per week, or $23,660 per year), known as the salary test. And they must performcertain job duties described in the FLSA's executive, administrative, and professional exemptions.
More Employees Eligible for Overtime
Under the current proposal, the minimum salary threshold would rise from $455 per week, or $23,660 per year, to $679 per week, or $35,308 per year. If the proposal becomes law, employees who currently earn between $23,660 and $35,308 will be entitled to overtime pay, regardless of whether they perform exempt job duties. The DOL proposal would also increase the annual minimum compensation for highly compensated employees (HCE) from $100,000 to $147,414.
The DOL anticipates that the new rules should take effect in January 2020. Previously, the Obama administration issued regulations in 2016 that increased the minimum salary threshold to qualify for overtime exemptions to $913 per week, or $47,476 per year. The regulations also increased the highly compensated employees' threshold from $100,000 to $134,004. However, these changes triggered litigation by business groups and many states, and on August 31, 2017, a federal court in Texas issued a final decision striking down the changes.
Preparing for 2020
How should your organization prepare for the changes to the FLSA? The first step is to familiarize yourself with the proposal, which the DOL recently published. You'll then want to revisit job descriptions and remove any ambiguity surrounding job duties. Review current exempt employees' actual job duties to ensure they are consistent with FLSA exemption requirements.
Next, reexamine your organization's process for classifying workers as exempt or non-exempt. Incorrect classifications could burden your business with inflated overtime bills or potential FLSA non-compliance, particularly if the proposed regulations become final and the salary thresholds increase. The DOL provides extensive guidance on their website to help employers classify workers correctly.
As you assess the likely effects of the changes, get a count of the current exempt employees making between $23,660 and $35,308 annually, and monitor how many hours they work per work week. Take note of the amount they would earn in overtime to determine whether the proposed changes might warrant raising their salaries to avoid paying more in overtime. For example, if an employee earns a base salary of $32,000 and consistently receives $4,000 to $7,000 in overtime payments, it may make sense to bump their salary over the $35,308 threshold.
Another option to consider would be hiring additional workers, either full- or part-time, to offset those overtime hours that your employees would incur.
If your employee time-tracking technology does not integrate with your payroll, now may be the time to consider an upgrade. Since the increases to the FLSA salary thresholds will mean more employees qualify for overtime payments, the potential for errors in manual time-tracking systems could help to justify an investment in automated solutions.
Until the changes to FLSA overtime thresholds take effect, pay close attention to coverage in the trade and business press. Regulations issued under the Obama administration faced resistance in the courts, and changes under the Trump administration may receive similar treatment, delaying their adoption. Be sure to read ADP's Eye on Washington page for more legislative updates.
Want to learn more? Listen to ADP's on-demand webinar, "How to Manage Wage & Hour Compliance and Proposed New OT Changes."
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