The New FLSA Overtime Rule

The Department of Labor updated the guidelines of the Fair Labor Standards Act with the new provisions set to take effect on December 1, 2016. However, a U.S. District Court judge issued an injunction effectively postponing the imple­mentation of Fair Labor Standards Act (FLSA) rule changes. Nonetheless, it is important for employers to understand the implications of these new rules to their operations and make the necessary adjustments to ensure compliance when changes finally take effect.

Summary of FLSA Changes

The new FLSA guidelines limit employers from classifying some employees as exempt, salaried employees who are ineligible for overtime pay regardless of the number of hours worked. These employees typically perform executive, administrative and professional functions. The new law raises the threshold level from $455 per week or $23,660 annually to $913 per week or $47,476 annually. In calculating annual salaries, the revised provisions allow 10 percent of the total salary to come from incentives, non-discretionary bonuses and other compensation such as commissions. The salary level for highly compensated employees was raised to $134,000 from $100,000.

Implications for Businesses

The changes to FLSA provisions have prompted employers to audit their payroll processing systems to analyze and identify which of their current employees should be reclassified as non-exempt personnel. Additionally, employers should re-evaluate their budgets to account for potential increases in overtime pay. On the flipside, several options are available to employers to skirt these provisions while ensuring compliance with FLSA guidelines.

These solutions may include reclassifying employees as salaried, non-exempt but specifying that total hours worked in a week should be capped at 40 hours. It is also possible to apply the 10 percent non-discretionary compensation to raise salaries higher than $47,476 annually. For many reclassified employees, total compensation will be boosted significantly by the new law. However, it is critical for employers to leverage their payroll processing systems to anticipate these changes, improve routine procedures to manage the increase in non-exempt staff and enhance administrative efficiency.

Impact on Employees

Many employees welcome the changes due to the prospect of higher take-home pay when overtime hours are paid. However, others have reported that some employees view reclassification as a demotion. Exempt employees do not have to account for hours worked as the pay for each payroll period is constant, but non-exempt staff have to prepare time and attendance records. Some employees also take pride in delivering results regardless of the time invested in the tasks. Being asked to account for their time is seen as an affront to their sense of loyalty and dedication. Moreover, employers must implement measures to make sure that all non-exempt employees observe 40-hour weeks to avoid unintended overtime or the perception that employees are spending more than 40 hours at work. For reclassified employees, this may mean altering routines such as adhering to strict break periods.

Preparing for FLSA Changes

It is clear that efficient payroll processing is a critical element to ensure compliance with FLSA rule changes. Automating the payroll process or outsourcing the system to a third party provider such as Integrated Payroll Services will help your company manage this transition to the revised FLSA guidelines. Call iPS at (262) 646-5210 to find out how we can help your business navigate these changing rules.