Technology — including analytics, benchmarking and biometrics — can play an important role in your organization's planning.
With changes to the Fair Labor Standards Act (FLSA) in effect on January 1, 2020, many organizations may be facing significant increases in their overtime expenses and a greater need to focus on overtime management.
Under the new rule, the minimum salary threshold increased to $679 per week or $35,308 per year. As a result, many employees who previously qualified as exempt, earning between $23,660 and $35,308, became entitled to overtime pay.
Given the changes to the FLSA, what role can technology play in helping your organization manage its overtime expenses and compliance proactively?
Adopt a Proactive Approach to Overtime Compliance
The 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, and potentially realize significant savings.
"One crucial step to take is to make sure employee classifications are correct" says James McGeady, Sr. Director of Product Marketing at ADP. "You don't want to misclassify someone, not pay them overtime and then find yourself facing a lawsuit."
If you haven't already, McGeady recommends mining your employee compensation data to find the previously-exempt workers at your organization who earn between the former and new salary thresholds 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 you understand who may now be earning overtime under the new rule and what it is costing you.
Assess the Impact by Tracking Hours
While some employees within the pay band may have been exempt previously, McGeady recommends putting mechanisms in place to track their hours. 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. Or if you use an automated system, consider adding the employees impacted onto the system. As a result, you may see a reduction in payroll administration effort, expense and error rates.
"Once you understand the impact, now you can assess your options," says McGeady. "It may be as simple as making a few adjustments to the schedule. For example, perhaps you have workers with some excess capacity available when others are working overtime."
Other options to consider are to bump an employee's salary over the threshold if it is close to $35,308 (if that is less costly). Or you can hire additional staff to take on what would otherwise be overtime hours so you can pay the additional workers at a regular rate. After all, this new band of non-exempt workers earns more, and will be paid the most expensive overtime rates.
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 work overtime and allow for changes in staffing to minimize or eliminate these situations proactively.
Since businesses don't always dedicate a team of financial analysts to managing overtime, McGeady views a do-it-yourself approach to overtime management as particularly important for these organizations. If your human resources solution provider offers 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. This way managers and departments can set their own goals to reduce overtime, and have better control of their labor budgets.
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. Without a scan, the employee does not get paid.
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.
Considering the FLSA changes in effect in 2020, McGeady notes, "You need to be sure you're complying with the overtime rules - properly classifying people, tracking their hours and paying them. And the right technology can help set the table for success now and for any future rule changes."
Want to learn more?
Launch ADP's 30-minute webinar: "Understanding and Preparing for the New OT Rule Changes"