For the first time in a decade, a memorandum was signed in 2014 by President Obama for the Department of Labor to update current regulations on the Fair Labor Standards Act (FLSA). On May 16, 2016 the final order was released.
While the industries with the greatest impact are retail and restaurants, it is all employers’ responsibility to understand what and how FLSA impacts their business. The updates will impact over 12 million salaried individuals who currently do not qualify for overtime compensation and earning less than $913 a week.
4.2 million workers who are currently exempt, 5.7 million white collar salaried workers, and 3.2 million salaried blue collar workers are impacted by this FSLA update.
What to Do First
If you haven’t already begun, start educating yourself on understanding the current law and the upcoming changes. You will need to determine what, if any, action you need to take prior to the December 1, 2016 effective date. You can locate and read a copy of the final order here. (Great for an evening you’re having trouble sleeping!)
- Stay calm. Although the law has it’s final order, you have 6 months to prepare.
- Review all employee job descriptions and duties (duties test).
- Review all employee salaries (non exempt and exempt).
- Review all employee hours worked. If you are using a time tracking software, pull a minimum of one year worth of data.
- Review company finances: budgeted vs. actual costs on expenses, and projected and current revenue levels.
- Attend a webinar or class led by a reputable source (SHRM, a labor law firm, an HR consultancy firm).
Who the Law Updates Apply to:
The FLSA updates have set a minimum threshold for salaried workers not earning overtime to $47,476.00, with salary increases at a minimum of every three years. The changes apply to blue collar workers (administrative, executive or professional) who pass the duties test.
The Department of Labor (DOL) has identified the duties test as the following:
- Professional Exemption: There are several different kinds of exempt “professional” employees. These include learned professionals, creative professionals, teachers, and employees practicing law or medicine. Under the Final Rule, exempt professional employees must receive at least $913 a week (the equivalent of $47,476 a year) on a salary or fee basis (compared to $455 a week under the old rule), and must primarily perform work that either requires advanced knowledge in a field of science or learning, usually obtained through a degree, or that requires invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.
- Administrative Exemption: To qualify for the administrative exemption, an employee must receive at least $913 a week (the equivalent of $47,476 a year) on a salary or fee basis, and the employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers. Additionally, the employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.
- Executive Exemption: To qualify for the executive exemption, an employee must receive compensation on a salary basis of no less than $913 per week (the equivalent of $47,476 a year), and have the primary duty of managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise. Additionally, the employee must customarily and regularly direct the work of at least two other full-time employees or their equivalent. For example, one full-time and two half-time employees are equivalent to two full-time employees. The employee has the authority to hire or fire other employees or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees, must be given particular weight.
How to Proceed:
For those with employees affected by this update, you do have a few options to review to determine how you’d like to move forward while ensuring you’re compliant.
- Raise current salaries to maintain the exemption.
- Pay current salaries levels with overtime after 40 hours.
- Reorganize workloads, adjust schedules or spread work hours across more employees.
- Adjust wages: non exempt employees wage freeze.
- Evaluate current and future benefits costs and possible cuts that can be made.
- Grow revenue or decrease operating expenses.
How to Share with your Team:
Transparency is a key factor for a small business to keep their team engaged, loyal, and happy. Start by preparing a communications plan and deliver a training session on any wage and hours policy updates. Explain in great detail to all employees (not just those impacted) why you selected the specific action to comply and how it impacts both them and the business, now and in the future. Take the extra time necessary to allow the employees to ask questions and be sensitive to their behavior if non favorable decisions had to be made by the company.
While this ruling will help millions of Americans, anyone with general business acumen can see the impact this will place on small businesses. Tough decisions are going to have to be made for many; whether that is reclassifying exempt vs. nonexempt, cutting hours, reviewing benefit packages or future hiring needs, the economy as a whole will lose as much as it gains.
images by:
Jakob Owens