May 2016 FLSA Ruling
The Department of Labor (DOL) has released the final regulation changes to Part 541, which governs overtime under the Fair Labor Standards Act (FLSA). These changes will directly affect employee status, pay, and more. These changes will go into effect on December 1, 2016.
What has been changed?
- Increased salary threshold: The new ruling doubles the salary threshold for exempt employees. The new threshold is $47,476/year. If a salaried employee falls below this threshold they will be entitled to overtime.
- Automatic salary threshold increases: Rather than annual increases to the salary threshold mentioned above, the DOL has decreased the frequency to every three years. This will maintain the threshold at the 40th percentile of full-time salaried workers in the lowest-wage Census region.
- Highly compensated employee threshold: The threshold for highly compensated employees (HCE) has been increased to $134,004/year. Any highly compensated employee making above this threshold is considered exempt.
What are the impacts of these changes?
The Department of Labor is estimating that this change will impact nearly 5 million employees, as their status will be changed to non-exempt, allowing them to be eligible for overtime pay. This will increase labor expenses for organizations across all industries.
How can you prepare?
- Budgets: Review your annual budgets and prepare for the increased labor costs. Using a position-based HR and Payroll system can help adjust your budgets by position, not by employees, in order to allocate funds properly and comply with new regulations going forward.
- Timekeeping System: Many employees that did not previously have to submit timesheets, will now need to do so in order to determine if they are logging overtime hours. Ensuring you have a timekeeping system within your HRIS is crucial to maintaining compliance with the updates.
- People: Some positions may be reclassified from salaried to hourly. This change can make the affected employees feel as though they have been demoted. Be sure to effectively communicate the reasons for the change so employees understand and know what to expect as the changes are rolled out.
- Adjusting Pay: Employers have options with how to deal with the change directly. One option is to keep the wages the same and make anyone that does not meet the minimum requirement of $47,476 non-exempt. The other option is to increase the salary for those positions that do not meet the required minimum threshold.
- Re-evaluate: According to HR Times, there are a variety of ways to review and re-evaluate how you manage your payroll and workforce in order to save costs that could rise due to this change. They are as follows:
- Adjust premiums for holidays, shift differentials, and weekends
- Eliminate payroll leakage
- Redistribute work or shift duties
- Redesign shift schedules
- Use contracted workers
- Reduce headcount
Next, Congress is attempting to pass the Protecting Workplace Advancement and Opportunity Act. This act would nullify the DOL ruling and would require the DOL to complete an economic analysis.