Smart, Easy Ways to Manage the Change.
It’s true. The long awaited overtime changes are here. This past May 18th, the Department of Labor released its final decision - doubling the salary level that determines whether employees are classified as exempt from overtime under the Fair Labor Standards Act.
These rules effect close to 5 million workers. Even more pressing, the rules become active on December 1st of this year. That’s just over 1 month away.
First, Here’s A Brief Snapshot.
We know. It can feel a little overwhelming. But, the numbers are actually pretty straightforward. Here’s what these new guidelines look like.
- The new annual minimum salary threshold has been increased to $47,476 from the old level of $23,660. That’s about $913 a week, up from $455.
- The new rules call for automatic increases to this threshold every three years – based on current projections, the salary threshold could rise to over $51,000 at its first updated on Jan. 1st, 2020.
According to the Federal Government, these new FLSA rules will grant overtime rights to approximately 4.2 million American workers currently excluded. If some of those workers are showing up to your office everyday – there are some essential changes you should take to meet the new requirements.
What are Exempt and Non-Exempt?
There are two employee classes. This is what they look like:
Non Exempt: Most employees are entitled to overtime pay under the Fair Labor Standards Act. These are classified as non-exempt employees. That means, as an employer, you are required to pay 1.5 times their hourly wage when these employees work more than 40 hours per week. It’s easy to miscalculate the overtime owed – and very important to get this right.
Exempt: Exempt employees are paid a salary instead of an hourly wage. The Fair Labor Standards Act contains dozens of categories wherein employers and employees are exempted from overtime requirements. The biggest benefit? You don’t have to track hours or pay overtime – no matter how much your employees work.
So, by raising the minimum exempt salary, the Fair Labor Standards Act may effect how much you pay your employees, and it also may change how you classify your employees. In order to make sure you and your employees are all taken care of, you will want to reevaluate their hours worked, and assess whether some employees will need to be reclassified.
Why it’s So Important to Get It Right…
We know. It’s tough. These rules significantly effect workers, and put a particular pressure on small businesses, higher education, and nonprofits. However, it’s worth dedicating some time to getting this right the first time out. If you fail to pay the correct overtime amount, or you accidentally misclassify an employee, you may face consequences and penalties.
For example, if you’ve misclassified employees as overtime exempt, you will owe them for all actual hours worked and all overtime worked. If you haven’t paid these employees for overtime, you may have prior liability for payment of back overtime pay. What if you don’t make these payments and notify your employees? You run a serious risk of undermining your business relationship with your workers, or of being sued.
What to do? Legally-speaking, the best option is to pay employees for all back overtime due. This may be tough, especially if you don’t have records of hours worked by that employee. In that case, get each affected employee’s idea of how much overtime was worked, and obtain the employee’s written agreement stating the estimated overtime hours are correct to their best understanding.
Whatever you choose, failing to comply or misclassifying employees costs you – not just financially, but in the trust and rapport built with your employees.
Be sure you review the new rules, and update your business accordingly. How to do that? Glad you asked…
Let’s Get Started…
Okay, don’t panic. There are some totally manageable, easy-to-take steps that will help you begin to make these changes.
To start, let’s take a look at who we’re going to need to focus on. That means, you’ll need to determine…
Which of your employees are currently classified as exempt, but making less than $50,440 per year?
Once you’ve got those folks selected, you’ll determine how many hours those employees are working each week. 60? 40? 30? Of course, be careful to look at the big picture here, because it’s easy to be hoodwinked by the numbers.
For example, one person on your team might be putting in a whopping 62 hours every single week. If she’s earning below the new minimum “exempt” salary, she would qualify for no less than 22 hours a week of overtime. That’s a pretty big pay increase.
Alternately, another person on your team might be doing a great job, putting in just 32 hours per week. If he’s paid by the hour after the overtime changes go into effect, he’ll likely see a significant pay decrease – dramatically changing his motivation level, and possibly his performance.
It’s important to see these numbers accurately, and to understand how they effect your team members. This way, you can make smart, informed decisions going forward that benefit your employees and your business.
Okay, Let’s Get Our Hands Dirty.
Now, it’s time to see where it makes sense to:
- Give currently exempt employees a pay increase
- Determine exempt employees you’ll start paying hourly.
First, take some time to consider how these changes will effect your team and operation. Remember, we’re talking about complying with the rules – but all this has to maintain your healthful, high-performing business.
Keep it Transparent.
Do you have a manageable timekeeping policy in your workplace? If not, now’s the moment to get started. You’re going to need to know exactly what people are working on when. And remember, this will be a big change for everyone in the office.
For example, your formerly exempt employees are probably used to being able to work after hours, and changing these timekeeping habits is absolutely key to preventing wage and hour violation. Make sure your policies are clear – that the team knows your company is committed to recording all time worked by non-exempt employees.
While this transition will present changes – communication goes a long way to helping your company ride it out.
In a Nutshell…
Here are some smart steps to take to make sure you and your employees have a smooth transition to the new rule:
- Audit currently exempt positions to find out whether or not they meet new regulations
- If a currently exempt employee typically doesn’t work more than 40 hours per week, you might not need to raise their salary. Instead, simply reclassify that employee as non exempt.
- Do you have an employee who’s concerned about losing their “salaried” status? That’s okay. You can treat that employee as “salaried non exempt” – giving them the opportunity to receive fixed salaries for up to 40 hrs. per week, and paying overtime rates for any hours over 40.
- Do you have an employee typically working over 40 hours per week? Consider increasing compensation to meet the new minimum – especially if this is less costly than paying that worker for overtime.
- Be sure to stay organized: you’ll need to raise compensation levels every three years to comply with the new requirements.
Still feel overwhelmed? That’s okay. There are tons of ways to be sure your business is in compliance, while still profitable, and always performing at the high level you love. Need a helping hand? That's good because…
We’re Right Here at Your Side.
Okay, take a deep breath. We know it sounds like a lot, but there are tons of folks just like you – going through the same process. Even better, there are experts out there happy to lend a helping hand whenever you need.
If you’re looking for a little more support, simply download our friendly, totally Free Guide below, or even better, get all the easy-to-understand info you want in our engaging Webinar.
Success is just around the corner, and we can’t wait to give you the expertise and assistance you need to make this transition fast, easy, and stress-free.