How the New FLSA Overtime Rules Affect Businesses

August 15, 2016 Zuman

[Updated: November 30, 2016]

*The Fair Labor Standards Act was recently stopped by a federal judge. The following article contains information to help HR departments understand the gravity of compliance to labor laws. However, until further information is received, the FLSA will not be made legal or enforced by the Department of Labor. For more information, read SHRM's article, "Federal Judge Halts Overtime Rule."

The Labor Department and President Barack Obama unveiled a new ruling for overtime pay earlier this year that would have a sizable impact on the American workforce. As part of the expansion of the Fair Labor Standards Act, the DoL opened up overtime pay access to an estimated 4.2 million U.S. workers, all of whom were previously exempt. As The Washington Post reported, this is the first update to labor regulations since 2004, and only the third increase to the salary threshold in over four decades. As beneficial as this is to millions of employees, especially those in the middle-wage bracket, the change in the overtime rules does mean new responsibilities for HR departments, and businesses overall, everywhere.

The New Rules

The new FLSA overtime rule won't actually go into effect until December 1, 2016. When it does, there are a number of significant changes that will occur to open up overtime pay access to such a sizable segment of the workforce.

The overtime rule applies to workers who earn no more than $47,476 per year (or $913 a week). These employees will receive overtime pay regardless of their classification as professional or manager. As the Society for Human Resource Management pointed out, the original cut-off proposal $50,440, and while that's slightly lower, the final figure is still twice the previous threshold of $23,660. An increase to the threshold will happen once every three years, with update No. 1 occurring on January 1, 2020.

According to projections from the DoL, the salary threshold will increase to just over $51,000 total. There are several other modifications involved in the overtime rule, and managers in and out of the HR department would be wise to review the DoL's entire ruling document.

A Manager's Role

Employers have until December 1st to comply with the overtime rule, but that doesn't mean they should wait until the very last minute. During SHRM's annual conference in July, administrator Tammy McCutchen, formerly of the DOL's Wage & Hour Division, told attendees to get everything in place at least a week before! That's because not only will it provide employers more time in case an issue arises, but the December 1st deadline is a Thursday, and changing overtime pay midweek can be an especially confusing and complex process.

But what exactly does HR need to do to comply with the overtime rule? James Swartz, an attorney with the Atlanta-based Polsinelli law firm, told SHRM that HR teams will have to properly manage overtime hours for each employee.

HR Paving the Way

HR departments play a huge role in overtime pay compliance, touching on a number of different tasks and responsibilities.

One of their biggest duties is to make sure managers and supervisors are properly trained in things like tracking time, reporting it and how to interact with employees on overtime-related issues. It's also a good idea for HR leaders to touch base with the actual employees, to ensure they know what's going on, how to work with the supervisors and to address any questions or concerns.

HR departments must also understand how the overtime rule might impact state wage notification. Depending on the state, certain wage notification laws might require notices to be sent out regarding the changes, either 30 days or one pay period in advanced. Not sending out proper notifications is not only illegal, but can add additional work to the HR professional.

Though employee and manager communications are essential, the bulk of an HR department's work may be in deducing primary costs, especially as it pertains to reclassification versus salary increases. Robert Boonin, a lawyer and past chair of the  Wage and Hour Defense Institute, told SHRM it might be wise for companies to determine the feasibility of salary hikes. That way, companies can retain some exempt status for employees who are just on the cusp of the new salary threshold. As long as employers pay them on a quarterly basis, non-discretionary bonuses of up to 10 percent are included in the calculations of salary exemption.

For the FLSA transition, businesses, especially small to medium sized businesses, are going to need help ensuring operations continue unhindered. Thus, it is important to have a solution which allows an HR team to fully manage and track time and wages accurately.

 

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Zuman

Zuman is the premium solution for HR, payroll, benefits administration delivering superior control, lower risk, and enhanced employee engagement for growing companies.

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