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HPC Blog

October 12, 2016 at 10:00 AM

Is Your Firm Ready For The 2016 Overtime Fair Labor Standards Act Regulation?

Written by
Alison Medhurst
Alison Medhurst |

Xero and Other Cloud Apps, Payroll / HR, Tips & Tricks

 

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On May 18, 2016, the Department of Labor (DOL) announced the publication of the final rule updating the overtime regulations, which will raise the minimum salary threshold from $23,660 to $47,476. The implementation date for this new regulation is December 1, 2016 leaving employers with little time to prepare for this change.

The changes you should know about the 2016 Overtime Fair Labor Standards Act (FLSA) Regulation:

  • The standard salary level required to be considered exempt will increase to $913 per week and $47,476 a year. Employers will be required to pay overtime to salaried employees who work in excess of 40 hours per week, if they make less than this new threshold.
  • Highly compensated employee’s salaries will increase from $100,000 to $134,004 per year.  The bar will be lowered for the duties test (which is only if the employee customarily and regularly performs any one or more of the exempt duties or responsibilities of an Executive, Administrative or Professional employee).
  • Employers may use non-discretionary bonuses and incentive payments to satisfy up to 10% of the new standard salary level as long as these are paid at least quarterly.
  • The DOL will update the salary and compensation levels every three years to maintain levels above percentiles.

Source: Department of Labor

Many more employees may be considered “non-exempt” once December 1st arrives so it is critical for employers to evaluate their firm’s employment policies and duties each employee performs. Highly compensated employees may be considered exempt according to their duties and not entitled to overtime pay even if they exceed the 40 hour work week.

When this new regulation is implemented, how overtime pay is calculated may also lead to complications.  Overtime pay is paid at one and one-half times an individual’s standard rate of pay.  Bonus pay and commissions may complicate how to determine exactly what an employee’s hourly rate is. With all of these new complications, let’s see what employers can do to create solutions for their companies.

Possible solutions for employers:

  • Restrict overtime or create new policies which only allow an employee to work overtime pre-approved by a manager.

Employers will be required to pay overtime worked, even if the employee didn't get prior approval. Create a strict workday schedule which only allows employees to work no more than 40 hours a week. This will also assist with a work-life balance in the long run. Or you can create a policy to request overtime hours from a designated manager of the organization so it can be tracked and the overtime expense can be estimated.

  • Hire more employees.

These new non-exempt employees can take over some of the job duties of the exempt employees to lessen the amount of hours worked and reducing overtime for current employees.

  • Convert exempt employees to non-exempt employees.

This may be difficult for employees to adapt to, but with proper policies in place like offering overtime with approval and a work-life balance organizational structure, your firm will stay compliant while keeping your employees’ best interest in mind.

How do you classify exempt employees after December 1, 2016?

Under the new overtime FLSA rule, employees who earn salaries more than $47,476 a year will be exempt from overtime pay. A salaried employee is guaranteed to earn an agreed upon amount each pay period even if they end up working less than the required minimum hour work week due to sick leave or unpaid time off.

The Department of Labor also requires varied tests for certain job professions such as executive, administrative, professional, and highly compensated employees. Read below for some examples of the tests that are performed in order to classify them as exempt. To be exempt, all of these employees must earn more than $47,476 starting December 1, 2016.  

Executive Employees

  • Employee’s primary duty must be managing the company or managing a department within the company. Employee must direct work to at least two or more other full time or equivalent employees and must have the authority to hire and terminate employees as necessary.

Administrative Employees

  • Employee’s primary duties must be non-manual work directly related to the businesses’ operations with discretion and independent judgement with respect to matters of significance.

Learned Professional Employees

  • Employee’s primary duties should include work performed with advanced knowledge, in the field of science or learning, and their advanced knowledge must be acquired by a course of specialized intellectual instruction.

Source: Department of Labor

3 ways to avoid a lawsuit:

Create Policies For Your Firm

Set new company policies for overtime and consider all current employees’ wages, salaries, and whether they will remain exempt or be classified as non-exempt. Make it easy for employees to clock in and clock out for the day. Software like T-Sheets can help you stay compliant, find out here.

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Create disciplinary procedures such as possible termination if an employee fails to report their overtime to a manager. Make sure to set work day schedules and confirm employees are not working from home on their off time. Run all of your new policies by a local attorney to make sure you are complying with Federal and State laws.

Comply with law and regulations

Join organizations which will send you newsletters regarding the new labor laws. Research as much as you can using the resources online released by the Department of Labor.

Create Procedures For Employees

Create procedures based on your new policies for tracking overtime. Implement procedures such as tracking time, tracking overtime, and how reports should be recorded by employees in order to stay compliant.  Keep detailed records of all procedures and reports for at least two years.

Do you need assistance with staying compliant? We are happy to evaluate your firm’s current policies and help you implement new procedures to be prepared for the new FLSA regulation.

Schedule Your Free Consultation

  

Alison Medhurst

About Alison Medhurst

Alison assists with Tax and HR for HPC. She also assists with marketing efforts and is heavily involved with providing a smooth onboarding process for clients.