The U.S. Department of Labor has issued the new and final regulations to the Fair Labor Standards Act (FLSA), with an effective date of December 1, 2016. This means that we must quickly review employees’ overtime status to determine whether they fall within the exempt or nonexempt categories of the FLSA’s new regulations.
The final overtime regulations issued by the Department of Labor (DOL) make a number of changes to the way in which employers will apply the FLSA tests and determine employees’ exempt or nonexempt status. The following major changes were made to the FLSA:
The salary threshold has been increased to $913 per week ($47,476 annually) which has increased from $455 per week. This means that any employee earning less than this amount automatically qualifies for overtime pay.
Highly compensated employees who earn $134,004 per year or more (which has increased from $100,000) and who customarily and regularly perform any one or more of the “white collar” exempt duties or responsibilities of an executive, administrative, or professional employee are exempt from the overtime requirements. These employees must receive at least $913 per week on a salary basis to qualify under this exemption.
“White collar” exemptions do not apply to manual laborers or other “blue collar” workers who perform work involving repetitive operations with their hands, physical skill, and energy. FLSA-covered, non- management employees in production, maintenance, construction, and similar occupations are entitled to minimum wage and overtime premium pay under the FLSA, and are not exempt no matter how highly paid they might be.
Non-discretionary bonuses, incentive payments and commissions may be used to satisfy the minimum salary requirement; however, these payments cannot exceed 10 percent of the employee’s annual salary.
Business owners should also be aware that the salary determination will automatically increase every three years beginning January 1, 2020
Still in effect are the rules regarding deductions from pay that require special attention. The regulations state that if an employer has a practice of making improper deductions from the pay of exempt employees, the employer will lose the exemption for the entire class of employees who work for that manager in that job classification.
How will these changes affect your organization? The answer depends on the number of employees who fall close to the margins for change through the new salary thresholds. Recent FLSA enforcement activity by the DOL has also shown a targeted effort to investigate low-wage industries with vulnerable, and often immigrant, workforces, and those industries with a history of chronic violations.
Employers who do not conduct workforce assessments to ensure that employees are correctly classified under the FLSA’s rules take the serious and potentially expensive risks of employee class action lawsuits and DOL audits. Keep in mind that only one current or former employee complaint to the DOL concerning overtime is required to open an investigation of the entire company’s classification methods.
To help ensure that your company will not be subject to a multi-million dollar FLSA claim or a DOL audit, StaffScapes suggests conducting an internal audit now. You will preempt the DOL and the plaintiffs’ attorneys, and discover any misclassifications before it is too late. As part of your audit, you should:
Make the determination on whether you want to increase an employee’s pay to the new threshold of $913 per week ($47,476 annually) or review the status of the employee and change them to a non-exempt hourly position. If you change the employee to hourly, also ensure you have a way to track hours as well as pay any overtime at one and half times the regular wages.
Review employees’ actual job duties to ensure that they still fall within the administrative, executive, professional, computer, or outside sales exemptions. Also review the employee job descriptions to determine whether they are still accurate, reflect the jobs being performed, and reflect the skills necessary to perform the job
Make sure you notify employees prior to the start of the pay period this takes effect. Some states have a different length of time that employers are required to give employees
Make sure you have properly calculated overtime for nonexempt employees. For instance, non-discretionary bonuses and shift premiums should be included in the calculation of the regular rate of pay.
Keep in mind that you can classify an employee as salary non-exempt. This way you can continue to pay a salary amount, but you must report hours worked, and any overtime worked must be paid at one and half times the regular wages.
Please call a Human Resource Representative at StaffScapes at 303-466-7864 to discuss how these changes affect your business or if you need help classifying your employees. We look forward to assisting you through this reclassification process.