By: Laura Kerekes and Renee Farrell
Last month, the Department of Labor (DOL) announced it would be changing the long-standing Fair Labor Standards Act (FLSA) regulations for minimum salary requirements for “white collar” exempt employee status and overtime pay. These new regulations, which go into effect December 1, raise the minimum salary for “white collar” exempt employees from $455 per week (23,660 annually) to $913 per week ($47,476 annually). This means that anyone who is classified as exempt under the FLSA “white collar” exemption rule and is making less than this new minimum salary will need to be reclassified as non-exempt and be paid overtime after working 40 hours per week no later than December 1. Exempt positions outside of the “white collar” exemptions are not impacted by this change.
It’s hard to overstate just how widespread these changes will be. Any business that makes $500,000 per year or more in sales or receipts will be required to meet this new standard — regardless of location within the U.S. or number of employees. This means that millions of businesses will have to make some tough decisions before December in order to remain compliant. Hospitals, government agencies and all schools (whether for-profit or nonprofit, public or private) are covered under these FLSA regulations.
Although this new regulation will create headaches for employers, the goal is to raise the living wage and to bring a better balance to working Americans’ lives. The DOL recently stated that back in 1975, 62 percent of full-time salaried workers were eligible for overtime pay. Today, only a mere 8 percent are eligible. While the goal to provide more workers with a living wage is admirable, the reality is this change is going to be painful for employers over the next several months and even for the first few years after the new law goes into effect.
Here’s how you can make the transition easier before the December 1 deadline:
Start Preparing Now
Although companies don’t need to make any changes until December 1, it’s going to take a while for you to figure out how this change will affect your budget, hiring needs and employees’ job responsibilities. Start now to make sure everything is in place by that deadline.
Begin by determining which employees are exempt. You can include quarterly (or more frequent) nondiscretionary bonuses and incentive payments, including commissions, up to 10 percent of the standard salary level. For those who make less than the minimum requirement, consider whether to raise these employees’ pay or the budget for potential additional overtime expenses. Be sure to also calculate the average number of overtime hours your current nonexempt workers put in on an annual basis.
Don’t forget to review your group benefits plans, as well as your paid time off and leave policies. Be sure to assess how these regulations will impact employees and how they will accrue time off.
Analyze Job Descriptions
Along with taking a hard look at your financial considerations with these new regulations, you will also need to review job descriptions for both exempt and nonexempt employees to see if that is really the classification they should have. See which employees are truly qualified to be exempt and examine if you can afford to increase their salary to the new threshold.
Consider if you need to make organizational changes for exempt and nonexempt employees with similar job titles and duties so there is better parity. If there are company policies that once applied only to exempt positions, you may also need to amend those to now include nonexempt positions.
Communicate Carefully with Employees
The new FLSA regulations give you a great opportunity to talk with your employees about your company’s pay strategy and values. But plan your communication strategy carefully. Telling employees that they have to track their time may seem like a demotion, loss of status or a hindrance to their career progression. Make sure employees understand that this change is no reflection of the value that they add to the company, but that it is merely a change to remain compliant with the law.
Keep in mind that face-to-face communication is generally ideal when conducting these conversations. After having these conversations, be sure to follow up with written documentation that reflects your conversation and clearly states the new classification status, rate of pay and overtime rate of pay for each individual employee. Also make sure to train your management team, as a transition like this may spark uncomfortable conversations. Give your managers the tools they need to successfully navigate these conversations. Include not only the nuts and bolts of what has changed, but also why this is happening. This will better ensure the company’s intentions are communicated in a way that demonstrates thoughtful consideration, respect for your employees and alignment with your company’s culture and strategic objectives.
These new FLSA regulations are going to have a significant impact on a huge number of businesses. But by starting early and communicating openly, you will be able to have as smooth a transition as possible when December comes around.
Laura Kerekes leads ThinkHR’s HR services delivery teams, including the company’s elite group of HR experts and the team responsible for ongoing aggregation and analysis of HR knowledge. Prior to joining ThinkHR, Laura held executive HR officer positions for large, multinational companies including AirTouch and Sygen as well as other companies in high tech, financial services and consumer products industries. Laura holds an M.B.A. with honors in HR and Organizational Development from Golden Gate University, a B.S. in Business Administration with honors from The Ohio State University and an Executive Human Resources Management certification from Stanford University. She also holds an SPHR certification.
Renee Farrell has been an HR Practitioner for over 13 years working in management and director-level positions. She holds a Senior Professional in Human Resources certification (SPHR), a Senior Competency Professional certification (SHRM-SCP) and a Certified Compensation Professional certification (CCP). A key member of ThinkHR Live’s team of HR experts, Renee frequently handles the company’s more complex compensation and wage and hour issues.