Seven Questions to Pose for FLSA Overtime Regulations
Written By Tom Hurley
The United States Fair Labor Standards Act of 1938 (FLSA) requires that employees be provided overtime pay unless they qualify under one of the FLSA exemptions. In response to President Obama's March 13, 2014 memorandum, the Department of Labor (DOL) drafted proposed regulations to update the FLSA overtime requirements for executive, administrative, and professional exemptions. In summary, the DOL proposed the following:
- Increase the minimum weekly salary to $970 ($50,440 annually) in order to be considered exempt – the current limit is $455 per week ($23,660 annually);
- Increase the highly compensated employee exemption total compensation threshold to $122,148 – the current threshold is $100,000; and
- Establish a mechanism for an automatic update of salary limits and thresholds each year.
The deadline for comments on the proposal was September 4, 2015, and it is uncertain when the DOL will issue final regulations. Employers need to plan and consider the many issues. The changes outlined in the proposed regulations will likely impact financial results, human resources and information systems.
Consider the following questions:
- Who should be involved in the planning? Engage the leadership of your organization in discussions. Educate them and provide a high level summary of how these changes may impact the organization.
- Which employees will be impacted? Gather lists of employees that are currently classified as exempt and have annual salaries below $50,440.
- What will your strategy be for those impacted? Develop alternative strategies for those employees that may be impacted. Companies will likely need different strategies for the various positions. Start evaluating the various strategies and understand the impact changes may have (i.e., increase pay to the minimum, change status to non-exempt, budgets required to deliver pay increases, etc.).
- How will the changes impact your compensation planning and administration? Take a look at your existing salary structure and job slotting. Increasing wages for employees in certain salary grades may create pay compression issues between grades. Organizations will need to review job functions and may need to move some positions to new grade levels. Determine what portion of your annual salary increase budget may need to be set aside, or whether a separate budget can be created. Remember that if the minimum salary threshold is raised annually, as proposed, then it may guarantee raises for certain employees. Consider how this will impact your annual budgets for cost-of-living and merit increases.
- How will these changes affect your employees? Not all employees will view the changes as positive. Some employees want to remain exempt because it provides them with some flexibility in the hours they work. Many organizations will need to decide whether supervisors that are changed to non-exempt will maintain managerial responsibilities. Engage with your employees to understand their issues and answer questions they may have.
- What system will you use to track time worked for any employees that were formally exempt and now will be non-exempt? In some organizations, groups of employees that had not previously needed to track hours worked will now need to track their time and report it to employers. Managers will need to monitor and approve overtime hours. Organizations should be looking at existing time tracking and payroll systems. Consider what changes may be needed and how you will train employees.
- How will the change impact your planning for the coming fiscal year? It is not known when the final rule will be officially published and released, so unfortunately, the effective date of any change is unknown. The decision on whether to build the cost of any changes into your financial plans will be largely based on how significant the changes impact financial results.