13 September 2016 / Blog
New Federal Overtime Regulations: What You Need to Know
As of December 1, 2016, organizations like yours will need to comply with changes to the Fair Labor Standards Act (FSLA) overtime rules, set by the Department of Labor. While new regulations may be confusing and businesses are concerned about how to comply with them—especially as implications here mean that more workers will be eligible for overtime pay, we set out to ensure you understand the rules, their implications and how you can get your organization compliance-ready before the deadline.
The Overtime Rule at a Glance
The new rule extends overtime protection to 4.2 million workers who are not currently eligible under federal law. For example:
- Workers who earn as much as $47,476 a year ($913 a week) will have to be paid overtime, even if they're classified as a manager or professional
- The Department of Labor will increase the salary threshold every three years. Based on current projections, the salary threshold is expected to rise to more than $51,000 with its first update on January 1, 2020.
- Full Coverage: Overtime Rule Issued; Increase Every Three Years Included
As of December 1, 2016, the job duties component of overtime eligibility remains the same. However, thresholds for salary tests have changed significantly. Currently, exempt employees are determined by their duties, salary level, and mode of payment. To qualify for FLSA minimum wage exemptions and overtime pay requirements under the new rules, your employees must:
- Be employed in an executive, administrative, or professional capacity--or in the capacity of an outside salesperson
- Earn more than $913 per week (or $47,476 annually)
- Be paid on a salary basis
Immediate Impact on Your Bottom Line
The new rule affects wage and hour compliance and may significantly impact labor costs. Areas of your business that will be affected include:
- Employee classification
- Employee scheduling
- Compliance reporting
- Work policies (such as mobile devices, etc.)
- Department Budgeting / Staffing
How to Prepare
To better manage overtime and related costs, it is critical to assess the potential impacts of the FLSA changes sooner than later. We recommend the following:
Clarify wage and hour compliance — Your workers are assigned to pay classes (e.g., hourly, non-exempt) based on the employment classifications you select. It is critical for you to understand how the new wage and hour rules affect how time is collected so you can remain compliant.
Ensure compliance with existing rules — Review existing employee classifications to ensure that your “exempt” employees are properly classified under current rules. For example, this means that employees who receive less than $455 per week are considered “non-exempt” and must be paid at least minimum wage and overtime.
Identify which employees meet the administrative, professional, or executive exemption — Determine which employees are exempt and currently earn at least the current minimum of $23,660, but less than the proposed minimum of $50,440 per year. Calculate how many hours these employees typically work on a weekly basis and factor in seasonal, or peak, fluctuations.
Better manage overtime costs — You’ll need to account for hours accurately and transparently in order to minimize overtime impact on your bottom line. Leverage analytics to get data on overtime trends, tools and features to fairly allocate overtime, manage overtime requests and approvals, and timecard review.
Compare the costs of raising employees’ salaries — Weigh the costs of raising employees’ salaries to meet the proposed exemption criteria against what it would cost to reclassify them as non-exempt, overtime eligible. If an employee’s salary is closer to the current minimum ($23,660) and they rarely work overtime, it might make sense to reclassify them as non-exempt. Conversely, if an employee’s salary is closer to the proposed minimum ($50,440) and they frequently work overtime, you may consider raising their salary to maintain the exemption.
Consider the impact on internal pay equity — Contemplate the impact of change on employee morale. A portion of change management is weighing the impact of the overtime rules on internal pay equity. Careful review of pay policies, pay ranges, roles and responsibilities is therefore essential throughout the process and on a regular basis.
How Velocity Expertise Can Help
Our Velocity team is your trusted advisor, offering expert support on human capital management solutions for your suite of applications. Whether you run Infor, Kronos, PeopleSoft, and/or payroll, risk and compliance solutions, our team is an extension of yours. Velocity makes it easy to simplify wage and hour compliance, stay on top of overtime, and manage your labor costs. By leveraging tools to help simplify wage and hour compliance, you can minimize the chances of costly complaints and penalties – and positively impact employee morale.
Ready for Velocity Human Resources experts to simplify the processes?
Contact us, or call 1.888.430.9252, to learn more
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