New overtime regulations of the Fair Labor Standards Act (FLSA) were set to become effective on Dec. 1, but an injunction by a federal judge in Texas has blocked its implementation for the time being. The Department of Labor has responded with a notice of appeal to the federal court. It is still uncertain how this will play out, but the rules might still become effective at some point.
Employers are now forced to play a waiting game. With this in mind, it could be a good time to prepare for practical solutions and go over proactive steps with an insurance advisor and/or legal counsel.
Related: How to Set Salaries
Quick overview of the new rules
While the new FSLA mandate is often referred to as the “Overtime Rule,” it is important to note that it does not address how overtime is paid. The major change in the law is in the minimum amount an employee must earn to be considered exempt from overtime pay. Currently, in order to be considered exempt (what’s commonly know as “salaried”), an employee must satisfy the following three tests:
1. Salary-level test: Employees must earn a weekly salary that meets the minimum requirements. This salary requirement is currently set at $455 per week.
2. Salary-basis test: Regardless of the quality or quantity of the work, employees must receive their full salary for any week they perform their work.
3. Duties test: Your employee’s primary duties must meet requirements set by the Department of Labor. For more info, check the DOL's site.
Salary threshold would more than double
If the proposed FLSA overtime rules were to go into effect, the salary threshold for exemption from overtime pay would be more than doubled. Currently, salaried employees who earned less than $455 per week ($23,660 annually) are entitled to overtime compensation regardless of their duties.
Under the new rule, the threshold would be raised to $913 per week ($47,476 per year). This means that any employee making less than $47,476 annually could not be classified as exempt. The impact would be monumental for businesses when considering the current number of exempt administrative and service employees (to name two job categories) with annual salaries between $23,660 and $47,476. The Department of Labor estimates 5 million workers would be affected by the new regulations.
Additionally, the minimum salary requirements for employees exempt from overtime pay under the “highly compensated” exemption would increase from $100,000 to $134,004 per year. These are employees who are considered exempt because they customarily and regularly perform at least one of the exempt duties of an executive, administrative, or professional employee. The new regulation would, for example, mean an employee making $100,000 would no longer automatically qualify by salary level as an exempt employee.
If put in effect, the new FSLA regulations would also mandate automatic increases to these minimum salary requirements every three years, beginning in 2020.
Moving forward while on pause
You must remember that the federal judge’s ruling to stop the overtime rule is temporary. We’re still waiting on the final ruling and the Department of Labor’s appeal. Also, the position of the incoming Trump administration on the regulation change could have an effect as well. Some feel the new administration won’t support the Department of Labor’s appeal while others feel the salary threshold might simply be reduced.
Regardless, many of us in the insurance and human resources industries see this an opportunity not to sit tight but as a reminder to conduct a regular review of employee classifications and compliance. Start with an audit of your current employees' statuses. More often than not, the review will find misclassified employees.
As part of the audit, analyze the impact the new regulations would have for your business. How many exempt employees would automatically become non-exempt based on their salary level? Financial projections based on previous time worked can help you better recognize the total financial impact. Consider how you will communicate with employees about the new rules and what new procedures would have to be put in place. These action steps will undoubtedly help your overall compliance.
Accurate time tracking policies
With all of the modern devices available to us, there is no excuse for not keeping accurate track of your employees’ time. Until we get a clearer picture of what is going to happen with the FLSA law, this would be the time to make sure accurate timekeeping practices are in practice. Avoid any unintended actions caused by inaccuracies in time tracking.
If you need one more reason for tracking your employees’ hours, here is some food for thought: the rule could still be enforced retroactively to Dec. 1. All it would take is for the courts to change its ruling or the Department of Labor’s appeal could be successful. That means your company could possibly be liable for any overtime pay for employees that would have been reclassified as non-exempt under the FSLA.
Accuracy is the best policy. It can help your company mitigate any future risk that can arise while the FSLA issue is being resolved.
Keep the lines of communication open
Since the federal injunction came down just days prior to the FLSA regulations taking effect, many organizations and managers were placed in a difficult position, as they had been preparing and communicating with employees about the impending changes. Maybe you already started reclassifying employees in anticipation of the compliance date.
You are under no legal obligation to revert back to the old salary threshold. Or you can roll back any changes to be in compliance with the previous overtime rules. Either way, you’ll have to consider the impact on company morale and administrative resources. Extreme caution is advised as there also are state law complication to bear in mind. Certain state laws may require pay notices for any changes in compensation.
It is in times of confusion like this that your company needs to develop a clear communication strategy and maintain an open dialog within the workplace. Developing clear communications and training plans for affected staff will make your company better prepared to address any changes to the law.
Despite the judge’s ruling, there is still life in the overtime rule. If a stay is granted from a successful appeal from the DOL, then the rule is back on. For now, everything is in a holding pattern. While we all wait to see how all this will play out, the bottom line is you do not want to be caught unaware and unprepared.