Wage and hour compliance is a hot topic. As noted by Lexology, compensation-based complaints are on the rise. If employees can show they've been underpaid or overworked, the outcome is easy to predict – businesses with wage and hour issues (no matter the size of the organization) will be liable. And since multiple employees in an organization may have the same claims, mistakes come with significant cost. What's more, there's a change to the rules in the Fair Labor Standards Act (FLSA) on the horizon. So, how do businesses make sure they're drafting policies that pay off in the long term?
The U.S. Department of Labor (DOL) recently sent its final draft of the FLSA rule change to the White House Office of Management and Budget (OMB). The new rule more than doubles the "white collar" overtime wage exemption from $23,660 to $50,440 per year. Right now, all salaried workers performing managerial duties who make more than $23,660 are exempt from overtime wages.
The change will affect approximately 5 million employees and will subject employers to a higher wage base for exempt employees, as well as potential penalties for non-compliance. The Protecting Workplace Advancement and Opportunity Act was proposed to counter the new rules and require the DOL and the Obama administration to conduct more in-depth research before revising the FLSA. The Obama administration, meanwhile, hopes to have the new rules issued by May or June 2016 and effective 60 days later.
Making the Shift
As noted by Bloomberg BNA, some companies are already moving to adopt the new standard and seeking legal advice to avoid potential challenges. According to Paul DeCamp, former DOL Wage and Hour Division administrator, "For most clients I'm talking with, employees who get converted to non-exempt will end up being paid primarily on an hourly basis, potentially with some measure of incentive comp or other sweeteners to encourage performance." Other companies are considering a wage bump to make sure their exempt employees' salaries are above the new threshold.
So what's the best bet for employers? The answer is it depends – employers need to carefully consider both the financial impact as well as potential employee relations issues. While making big changes may be premature, it's a good idea to conduct an internal wage review and see how many employees may be affected. Using that number, companies can determine which compliance strategy best suits their needs. For employees who are close to the new threshold, bumping up wages could be the most cost-effective choice. If most of the workforce falls well below the new threshold, changing employees' classification to non-exempt may be better — with the understanding that improved workforce management oversight will be required.
It's a safe bet the new FLSA rules will be in effect sometime this year. While revising policies ahead of schedule isn't necessary, it's a good idea to come prepared: Know how many workers are affected, develop a plan to control overtime costs, manage employee relations impacts, and ensure long-term wage and hour compliance.
Businesses looking for more information on the FLSA rule changes and how to prepare can check out the ADP FLSA Resource Center and Online Calculators, as well as a series of free webinars produced by ADP and Littler Mendelson, one of the nations' leading labor and employment law practices.
* A U.S. District Court has temporarily blocked the new overtime rules from going into effect on December 1, 2016. Read the Eye on Washington to learn more.
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