New rules bring new challenges. That certainly holds true when it comes to overtime pay exemptions, which will increase next year for the first time since 2004. To help you prepare for what’s coming, let’s break down what the Department of Labor (DOL) recently enacted and help map out your next, best moves.
Breaking down what just went down.
It’s all about the numbers. Starting January 1, 2020, DOL revisions to the Fair Labor Standards Act (FLSA) will make 1.3 million more Americans eligible for overtime pay.
This final rule will increase the amount of money (or earnings threshold) that full-time executive, administrative or professional employees need to make in order to be considered exempt from receiving overtime pay.
Under the rule, the “standard salary level” is increasing from $23,660 per year ($455 per week) to $35,568 ($684 per week). It’s also raising the total annual compensation requirement for “highly compensated employees” from the currently enforced level of $100,000 per year to $107,432 per year.
Those are the big changes. But, it’s also worth mentioning that with the final ruling, employers are allowed to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level.
For all the details, check out what the DOL has to say about everything by visiting dol.gov/whd/overtime2019/.
Your next, best moves.
How you respond to the new rule can make all the difference. And the devil, as always, is in the details. While the steps below outline general actions you should consider, it’s essential to drill deeper into those details to determine what each means for you and your unique situation. Let’s dive in!
1. Take inventory of exemption status changes. Given the changes, you’ll want to take a fresh inventory of who will qualify as exempt versus non-exempt under the final rule. If you use Orbit Time and Labor, it’s pretty simple to gather the data you need for analysis. Just pull a report that includes employee id, employee name, job title, pay type and compensation data. Then, evaluate individuals against the criteria laid out by the DOL here. Make sure employees are not being misclassified!
2. Evaluate business impact and adjust. Figure out how exemption classification changes will impact your business in terms of costs. For example, if certain employees now qualify for overtime, you may decide that it’s better to increase their salaries than be on the hook for potential overtime payments. With that said, remember to consider employee satisfaction in these decisions. After all, retention is a cost saver. Consult an HR professional like MRA if with any questions, as there are certain legal implications to consider.
3. Update systems. If you use a time and labor system, like Orbit Time and Labor, ensure all employee data (e.g., title, salary, exemption status) is updated to accurately reflect any changes brought about by the rule or actions you’ve decided to take in step two above.
4. Document best practices. Get your updated rules of operation down in writing. Update employee and manager handbooks, so there’s no question as to how procedures should be enforced or followed. For example, document the process employees should follow to notify managers in advance of overtime, and how or when managers should approve extra hours.
5. Communicate. It’s absolutely critical that nobody impacted by these changes is blindsided. If an employee’s exemption status is changing, communicate these changes in advance and be prepared to talk about what’s happening. It’s not unusual for employees to feel confused, angry or emotional about changes, so be ready to provide them with the support and information they need.
6. Check out our webinar. There are a lot of factors to consider when big changes like this come down the pike. We hosted a webinar covering how to respond to the new FLSA overtime rules. The sessions are over, but we’ll save a recorded version for clients in Orbit Solutions shortly.
New rules, new challenges, same reliable partner.
At Payroll Data Services, our goal is to help you make sense of ever-changing rules like the ones you’ll face next year regarding overtime pay thresholds. Follow us on LinkedIn and Facebook to stay on top of this and other issues.