How should your organization prepare for the changes to the FLSA?

After years of legal wrangling and a change in administration, adjustments to overtime exemption rules under the Fair Labor Standards Act (FLSA) were announced on September 24, 2019. The Department of Labor (DOL) released the final rule and it will be effective January 1, 2020.

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. Today, their salary must exceed a certain threshold (currently $455 per week, or $23,660 per year), known as the salary test. And they must perform certain job duties described in the FLSA's executive, administrative, and professional exemptions.

More Employees Eligible for Overtime

Under the new rule, the minimum salary threshold will rise to $684 per week, or $35,568 per year. Effective January 1, 2020, employees who currently earn between $23,660 and $35,568 will be entitled to overtime pay, regardless of whether they perform exempt job duties. The DOL rule also increases the annual minimum compensation for highly compensated employees (HCE) from $100,000 to $107,432.

Previously, the Obama administration issued regulations in 2016 that increased the minimum salary threshold to qualify for overtime exemptions. 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 new rule. Start by reading this overview. 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 since the salary threshold is increasing. The DOL provides extensive guidance on their website to help employers classify workers correctly.

As you assess the effects of the changes, get a count of the current exempt employees making between $23,660 and $35,568 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 $35,568 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.

Want to learn more?

Be sure to read this alert about the 2020 overtime rules and subscribe to ADP's Eye on Washington to keep up-to-date on legislative updates.

Register for or replay ADP's 30-minute webinar to be held on October 16, 2019: "Understanding and Preparing for the New OT Rule Changes"

Tags: Salary and Wages Payroll Processing FLSA Research & Insights Minimum wage requirements Risk and Compliance Small Business Change Management Multinational Articles Finance Midsize Business Payroll Administration Large Business

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