Written by: Amy Kraal, HR Strategist & Business Consultant
The highly-talked about changes to the Fair Labor Standards Act (FLSA) were released today with a December 1, 2016 deadline for compliance. Almost every private company is subject to and impacted by FLSA law. If you haven’t already evaluated the impact on your workforce, it’s time to start.
The new regulations are spurring conversations and decisions on wages, overtime costs, policy, time keeping practices and perceived employee demotion to hourly status. While the new laws may not seemingly impact every organization at the same magnitude, we see this as a great opportunity for companies to look at their pay practices when it comes to salaried and hourly employees.
Unbeknownst to many, exemption status is one of the largest compliance violations in small to mid-sized companies. While not purposeful, it's just lack of understanding of the laws. Companies simply cannot choose a job to be exempt. Many attempt to make a job exempt by adding in a few extra duties or a direct report.
These items do not make a job exempt
- College degree required
- A direct report
- Advanced knowledge application
- Discretion with customers and vendors
HR Generalist, Office Manager, Helpdesk Technician, Executive Assistant, Maintenance Technician, Customer Service Lead are all positions that rarely fully meet exemption test before & after the FLSA law change.
The Fair Labor Standards Act has a set of guidelines, written decades ago, that provide testing rules to employers on what positions have the right to be paid overtime in a work week. With all the big hype of the updates, the biggest disappointment was the lack of an overhaul of the duties tests. The duties tests remain antiquated and are not reflective of the complexity of the way companies work.
The notable change is the updated thresholds of pay - the final rule requires employees to be paid a minimum of $47,476 to qualify as exempt & must be over $134,004 for highly compensated employee exemption. With all the media hype on the changes, employees will now question whether or not they have been paid fairly - therefore potentially increasing your risks of wage & hour claims.
Steps to take now
- Update (or create) accurate job descriptions
- Establish a professional non-exempt classification in your handbook
- Have the positions professionally evaluated for exemption status & keep a copy of the completed test on file
- If position meets exemption standards and the current pay is below minimum threshold, consider amount of overtime typically worked vs. the costs to increase salary
- If a position doesn’t meet exemption standards, the position should be changed to non-exempt status
- Develop your communications for employees to help them understand the changes in the law and the impact on their pay or employment status
'Professional Non-Exempt' is not the same as 'Hourly'
Don't run out and buy a time clock or start treating office based professional positions like they work on a production line. These are professional positions for professional people who still want to be treated like a professional.
- Let the employees know that their positions have recently been reviewed in light of the new FLSA changes, and that they will now be eligible for overtime for actual hours worked over 40 in a work week.
- Check your employee handbook to make sure you pay overtime only for actual hours worked, not inclusive of holiday, sick or vacation pay.
- Update written policy and communicate to employees how to report work hours over 40 in a work week.
- Have employees sign an acknowledgement that they understand their obligation to report time.
- Pay all reported work hours over 40 at time and a half.
- From a payroll practice, you can still default to pay 40 hours per week.
- You can allow them to manage their time to maintain a full work week.
- Watch your overtime hours, if non-exempt employees consistently work overtime, you should look at your staffing plan and work responsibilities.
Companies are going to be pushed to be more strategic with work assignments, staffing plans, and maximizing the workflow and cost of labor. It's simply too costly not to.
HR Solutions Group of West Michigan can assist you with evaluating the exemption status of your professional and lead positions as well as help you with the implementation of HR software that will make tracking time and payroll expenses easier to manage.