Many companies are aware of the recent federal change to the Fair Labor Standards Act (FLSA) exemption rule that, according to the Department of Labor, will make 4.2 million additional salaried white-collar American workers eligible for overtime pay.
The FLSA does not provide an exemption from these requirements for small businesses. The new exemption rule generally applies to employees who perform executive, administrative or professional duties at most companies.
Here are some tips to help ensure company payrolls remain in control when the new overtime rules go into effect.
Here are some tips to help ensure company payrolls remain in control when the new… more
Under the old rule, white collar employees were required to receive overtime pay if they made less than $455 per week or $23,660 a year. Effective Dec. 1, 2016, the minimum salary level increases to $913 per week or $47,476 annually. It also establishes an algorithm based on economic factors which will be used to determine future adjustments to the minimum salary requirement.
As is the case with all salary issues, the opinions of business owners fall at both ends of the spectrum — from being supportive to seriously concerned about additional costs. However, one thing is true for all companies: With the implementation of this rule change officially on the horizon, now is the time to make certain that payroll costs can be tracked on a timely and accurate basis.
Following are some tips to help ensure company payrolls remain in control when the new overtime rules go into effect:
1. Determine the impact now
All companies need to be aware of how many employees on their payroll will be affected, review job duties of affected employees, and develop compensation plans to review the cost of increasing salaries and/or reclassifying any affected employees as non-exempt, which requires employers to track hours and pay additional overtime pay for hours over forty in a work week.
2. Consider time-tracking software
Companies without tracking systems will need to implement hourly tracking systems to manage new time-keeping responsibilities for employees reclassified to non-exempt status. Companies with hourly tracking systems that are less robust should consider electronic solutions that allow workers to clock in and clock out at their workstations or via mobile devices.
3. Revisit company overtime rules
Are employees required to obtain written permission from an authorized supervisor prior to working overtime hours? If not, management may want to change protocols and policies to better track and control overtime costs.
It should be noted that a policy requiring permission to work overtime is valid, but if an employee works overtime and the employer knew or should have known (or, as the FLSA says, “suffers or permits an employee to work,”) overtime must be paid, although the employee may be disciplined for not following the policy. For many businesses, new checks and balances will become crucial to ensure that productivity and costs are appropriately managed.
Once a company determines if the new rules will have an impact and identifies the employees who will be affected, management should communicate with the affected employees and their supervisors to proactively explain any protocol or policy changes.
5. Consider some salary adjustments
Finally, some companies may decide to make pay adjustments for some employees whose salaries are near the cap. Doing so could reduce some of the timekeeping complexities the law might create. Employers need to know that a salary increase alone does not guarantee an employee is exempt from overtime because there are also duties tests that must be met for an exemption to apply.
Like it or not, the Department of Labor’s rule change is a reminder that all businesses should regularly review and refine timekeeping procedures and take advantage of new technologies that save time and money along with providing administrative relief. Doing so will benefit both workers and the company as a whole.
Janet Flewelling is a managing director of service operations for Insperity.