Technology — including analytics, benchmarking and biometrics — can play an important role in your organization's planning.
If made final, the Department of Labor's proposed changes to the Fair Labor Standards Act (FLSA), scheduled to take effect in January 2020, could result in many organizations facing significant increases in their overtime expenses and a greater need to focus on overtime management.
Under the current proposal, the minimum salary threshold to qualify for certain overtime exemptions would increase to $679 per week or $35,308 per year. As a result, employees who earn less than $35,308 will become entitled to overtime.
Given the proposed changes to the FLSA, what role can technology play in helping your organization manage its employee time and attendance proactively?
Adopt a Proactive Approach to Overtime Compliance
The potential change to the FLSA threshold means now is the time to revisit your approach to overtime management. By doing so, you can better position your organization to assess the impact of the FLSA changes on your labor costs.
"One crucial step to take in anticipation of the upcoming adjustments is to use the period to make sure employee classifications are correct," says James McGeady, Sr. Director of Product Marketing at ADP. "You don't want to misclassify someone as exempt, not pay them overtime and then find yourself responding to legal or administrative claims."
McGeady recommends mining your employee compensation data to find the exempt workers at your organization earning between the current and proposed salary threshold of $23,600 and $35,308.
Your HR system of record can likely produce a report showing existing employees and their classification. This system and/or your payroll system can likely be used to gather compensation data, and to help understand who is earning overtime today and what it is costing you, as well as who may become non-exempt and earn overtime under the new rule.
Assess the Impact by Tracking Hours
While some employees within the pay band may be exempt currently, McGeady recommends putting mechanisms in place to track their hours, as their classifications may change in the future. Now may be the perfect time to consider replacing manual timesheets with automated timekeeping, which can help with both the increase in volume and with more accurate calculations. As a result, you may see a reduction in payroll administration effort, expense and error rates.
"Who in the bandwidth is working overtime? Now figure out what you would have to pay them if the rules are made effective," says McGeady. He also encourages businesses to consider the costs and benefits of bumping an employee whose salary is close to $35,308 over the threshold if that is less costly. Under these circumstances, employers should confirm that these employees continue to perform exempt job duties.
Another strategy may be to hire additional part-time and full-time staff to take on what would otherwise be overtime hours, so you can pay the additional workers at a regular rate.
Use Analytics to Inform Your Decisions
To account for the financial impact of paying overtime to a new group of employees, businesses should also consider how they might change their approach to scheduling and overtime management. If you've not done so recently, now might be the time to understand the root causes of your overtime needs and begin taking steps to minimize them.
Developing an in-depth understanding of your overtime expenses depends on access to robust analytics. Instead of analyzing hours at the end of a pay period, consider using real-time analytics to track hours as the week unfolds. This can help identify employees who are on track to earn overtime and allow for changes in staffing to avoid extra payments.
Since small businesses often lack a dedicated team of financial analysts to manage overtime, McGeady views embracing a proactive approach to time management as particularly important for these organizations. If your human resources solution providers offer access to benchmarking data, McGeady recommends comparing your overtime expenditures with those of your industry peers. This can help you understand typical rates in your industry and determine where your business stands in relation to its competitors.
In addition to complying with the FLSA, businesses must also take steps to mitigate the threat of fraud. To ensure that employees receive the compensation to which they are entitled, many firms are turning to biometrics to detect and prevent payroll-related fraud schemes. Most often, this involves scanning an employee's fingerprint at the beginning and end of their shift. Employers who rely on biometric information should be mindful of certain compliance requirements, such as providing notice to employees and obtaining consent to use this information.
Proactive alerts that indicate when an employee exceeds their allowed hours or a manager manipulates employee records can provide organization leaders with visibility into data anomalies that could be related to fraud. These safeguarding systems can also contribute to the integrity of your data, allowing for attestation and auditing with a greater degree of confidence.
Regardless of whether the proposed changes to the salary threshold take effect in 2020, preparatory compliance efforts should commence now. As McGeady notes, "You need to be sure you're complying with the overtime rules today, and that comes down to classifying employees correctly, and then tracking their hours and paying them properly. The right technology can help set the table for success today and with future rule changes."
Be sure to read ADP's Eye on Washington page to keep up-to-date on 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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