Counting Down to FLSA Overtime Ruling Implementation

The clock is ticking. The long-awaited Fair Labor Standards Act (FLSA) overtime ruling for white-collar workers has been released, and it goes into effect on December 1, 2016. That gives employers just six months to review and update their policies, create a strategy, and consider software updates for FLSA compliance.

Key Provisions of the Rule

While the changes in the ruling weren’t as drastic as some feared they would be, there are still significant increases to salary minimums as well as regular updates that will alter the requirements over time. Key provisions include:

• Effective date: December 1, 2016
• Increased minimum salary to qualify for exemption. Employees must make $913/week or $47,476/year, which is equivalent to the 40^th percentile of full-time workers in the lowest-wage region of the country.
• Updates every three years to maintain current percentiles.
• Highly compensated worker total annual compensation requirement of $134,004, or 90^th percentile of full-time salaried workers across the nation.
• Amendment to salary basis test which allows employers to include bonuses and monetary incentives as up to 10% of a worker’s salary.

Implementing the FLSA Rule Without Alienating Workers

 The DOL promotes the new FLSA ruling as a protection for workers, but in some cases, it will give workers less flexibility and prompt employees to make undesirable changes to employee status. In order to maintain employee morale and positive company culture elements such as work-from-home arrangements or flex time, employers should carefully consider both how they will implement the rule and how they communicate new policies to employees.

1. Consider Your Options

The rule does not stipulate how employers must meet its requirements. Options include:

• Raise an employee’s salary to reach exempt status
• Pay overtime above a salary based on current base rate
• Realign workload so that employees do not need to work more than 40 hours per week
• Include commissions, bonuses, and incentive payments for up to 10% of the salary requirement
• Supplement workforce during busy seasons with part-time or temporary workers
• Consider how future salary minimum updates will affect your ability to compensate employees. For example, if you plan for an increase of $1,000, but the update increases the minimum by $1,200, will you still be able to keep all employees on the payroll?

2. Consider Employee Morale

Will employees view the changes as a demotion? How will changes affect your other employees? Here are a few potential pitfalls that could cause unrest among employees:

• Offering raises to those below the minimum in order to bring them to exempt status, but not offering raises to those above the cutoff
• Increasing the workload for some employees while decreasing it for others
• Changing an employee’s status from exempt to non-exempt, which could be viewed as a demotion
• Decrease work-from-home options or flexible working hours. These hours are significantly more difficult to track, but could open you up to legal claims if not tracked and reported correctly.

It’s not all bad news, however. Workers who spend more than 40 hours in the office but don’t receive adequate compensation for that extra time will experience positive changes, either by receiving better compensation or by not working those extra hours for minimal pay. That could translate into better engagement, increased loyalty, and higher productivity.

3. Communication is Key

Anytime a new policy comes down the pipeline, it must be preceded by clear, frequent communication. In this case, it’s especially important to communicate to employees that the changes result from a new law, and that they are not based on individual performance.

Updating Your Software Can Help

The new ruling will require scrupulous tracking of employee hours, especially when employees work outside the office. Look for a software system that has remote clock-in capabilities or mobile solutions. Some systems can log time automatically, detect idle time and breaks, and link attendance information directly to the payroll system. In addition, careful time tracking and reporting will ensure that FLSA requirements are met.

If you need new software to comply with FLSA standards, our HRIS Comparison Tool helps you compare options based on your business needs.