What you need to know to prepare your business for changing regulations.

The Fair Labor Standards Act (FLSA) is the federal law governing compensation and labor issues such as minimum wage, overtime, recordkeeping, and deployment standards for a wide range of workers in both the private and public sectors. This is one of the many important regulatory aspects of managing employees that rarely makes front page news. However, when these rules do change, it’s critical that employers take note and prepare accordingly.

Recently, Shiftboard teamed up with Tim Lecher, labor and employment attorney at Cooley LLP, for a webinar on one such FLSA update rapidly approaching. Why the expert insight into a seemingly trivial modification? Well, to start, it is poised to impact approximately 4.2 million employees throughout the US.

Now, it is true that recent legal and political maneuvering may ultimately delay the effective date. However, it’s important to note that these opposing measures do not stand a strong chance of succeeding. As such, employers should proceed under the assumption that this change is coming sooner rather than later.

What’s changing?
On December 1, 2016 the FLSA is set to implement new rules governing overtime eligibility for employees. Specifically, the minimum compensation level for overtime-exempt employees – presently $455 per week ($23,900 per year) – is essentially doubling. Meaning that employers will suddenly become legally obligated to pay overtime to millions of salaried “white collar” employees for working more than 40 hours in a week.

Wait, salaried employees can earn overtime?
Yes, but this is a common misconception. While the FLSA’s so-called “White Collar Exemptionscan disqualify someone from earning overtime, simply paying an employee a salary does not automatically trigger an exemption. Employers must satisfy several requirements pertaining to all three of the following criteria:

  1. Duties performed.
  2. Basis of salaried compensation.
  3. Level of salaried compensation.

Note that salary level is the only element that’s changing. However, the specifics of each condition are highly detailed and can vary greatly on a case-by-case basis. Additionally, state laws can add regulations on top of this federal base level of labor requirements. So consult a professional for any compliance questions.

What do I need to consider first?
So, any employee earning less than $913 per week ($47,476 per year) will soon be eligible for overtime. Now what?

computerized_time_clock_v1-copyVisibility into your operation in terms of hours worked and compensation levels is key. First, identify any employees this minimum salary rule change will affect. Ideally, you should be able to run reports that can pinpoint employees presently exempt from overtime, with compensation below the new threshold.

Can you easily determine how many hours they generally work in a given week? If you not, begin tracking hours ASAP or get estimates from their supervisors. Again, you want to be able to easily establish if an affected employee is regularly approaching, or eclipsing, the 40-hour limit.

How do I respond?
The ability to assess weekly workload in concert with salary level relative to the new compensation threshold is crucial to strategically weighing your options. This information will help guide how you handle these affected employees. Possible routes for maintaining compliance after Dec. 1 include:

  • Preserve overtime exemptions by raising salaries to meet the new minimum compensation requirements. Ideal for workers with earnings already near the new threshold, who regularly work overtime.
  • Maintain current salary levels, track hours worked, and pay overtime if weekly workload exceeds 40 hours. You must be able to identify employees who rarely work enough to qualify for overtime.
  • Reorganize workloads, adjust schedules, or redistribute work hours. Agile scheduling, tracking pay rates, and monitoring hours worked are key to accurately rearranging roles. You may also need to recruit and onboard new part-time labor to fill in gaps.
  • Convert exempt, salaried employees to hourly compensation. You must ensure that the total amount paid remains largely unchanged, keep an accurate record of hours worked, and compensate employees for all overtime.

timeclock-person-imageOf course, this is just a basic overview of a few of the avenues available to you. Every situation is unique, so it’s best to let the specifics of your organization guide your strategy. That’s why it’s so important to gain visibility into your workforce with accurate tracking data and detailed reporting.

In addition to providing an overview of the upcoming changes, Tim answered a few questions from the audience:

Are all organizations subject to this law?
This is a tricky question, however it’s best to assume this law applies to your organization. Even when there are exceptions, there’s generally not a universal answer – take non-profits and charities for example. Additionally, employees can be covered individually if their duties involve interstate commerce. There are many broad interpretations that apply to the vast array of entities out there. These can vary by location, and other factors, so it’s best to consult legal counsel.

Any recommendations for transitioning a workforce from salaried to hourly compensation?
Employee morale is a major concern here, so transparency is key. Straightforward, proactive communication is important. It’s helpful to lay out a plan for explaining the change to your workers and designate a specific person to convey this message as well as answer any questions.

What is the penalty for noncompliance?time-money-image
Audits, complaints to the Department of Labor, or employee lawsuits can all result in a violation for unpaid overtime. Generally, the penalty will be back pay for 2-3 years, plus attorney’s fees. Additionally, FLSA will provide for liquidated damage to match the owed overtime pay in some cases. Penalties are paid for each employee, so class action lawsuits are common.

recordkeeping-imageWhat are the FLSA’s record keeping requirements?
A full fact sheet is available here. Employers are required to keep thorough records on each worker, hours worked, and wages earned. The full list of required info is too long to list here, but it’s important to remember that the FLSA emphasizes accuracy and detail. So in-depth worker profiles and powerful labor reporting can help save time while keeping you compliant.

What if an employee violates a policy against working overtime?
Establishing written policies against overtime is good for documentation, however employers are still obligated to pay employees for work performed. You can warn them and establish a disciplinary record of violating a policy without authorization. That way, if any problems arise in the future, there is proof you addressed the issue and are not promoting off-the-books labor.

Next steps to prepare my workforce?
Listen to Tim’s webinar overview of the  FLSA’s approaching overtime rule changes to start. Although the details of preparing each organization to comply with the new law can vary greatly, the deep insights provided by powerful reporting and improved visibility into your workforce can help businesses of all kinds adjust more effectively. To discover for yourself how much easier workforce compliance and management can be, check out a free dynamic employee scheduling demo.