Changes to overtime rules are coming

Long anticipated changes to the Fair Labor Standards Act (FLSA) will soon become law. Employers are required to implement these changes before year-end, although the exact date for compliance is unknown. For most organizations, the new regulations will affect staffing, budgets, overtime, policies, procedures, benefits and morale.

The FLSA applies to most businesses. It enforces overtime provisions and child labor laws, and governs the salary and duty tests that determine if an employee is eligible to receive overtime wages. The FLSA is enforced by the Department of Labor.

The salary test states that an employee must earn a minimum salary to be considered exempt from overtime eligibility.

The duties test looks at the actual work performed by the employee to determine if the work falls under one of the exemption categories, which include executive, administrative, learned professional, creative professional, computer, outside sales and highly compensated. It should be noted that states such as Nevada and California have their own exemption categories that need to be considered.

Exemptions do not apply to blue-collar workers, police officers, firefighters, paramedics or first responders. Collective bargaining agreements may offer more generous benefits such as paying overtime to those who fall into an exempt category but must comply with the minimum thresholds for salary and duties test in the law.

History of the FLSA

The FLSA was signed into law in 1938 by President Franklin D. Roosevelt. The purpose of the FLSA was to regulate child labor and establish a minimum hourly wage of 25 cents with a maximum work week of 44 hours. The FLSA has been amended throughout the years, but many employers and employees note that the FLSA had not kept up with inflation or changes in how employees work.

Employers often struggle with how to compensate non-exempt workers who respond to emails or calls on their personal devices before or after business hours. As business and personal lives have become one, the minimum wage has not been increased substantially, leading to states enacting a minimum wage in excess of the federal minimum wage. Compensatory time is not permitted in lieu of paying overtime in the private sector although many employees would appreciate the ability to flex time. These are just a few examples of the disconnect between the FLSA and the workplace.

With a focus on low wages and overtime regulations, President Obama signed a Presidential Memorandum in March 2014 directing the Department of Labor to research and conduct outreach with key stakeholders including employers, business associations, profit and nonprofit organizations and government entities. The goal was to determine the appropriate salary level for exempt status, the salary test, if changes to the duties test were required, and any recommendations to simplify the regulations.

Proposed changes

Department of Labor research resulted in a change to the salary test, and although no changes are currently noted in the duties test, employers should be prepared for potential changes in the exemption tests down the road.

The FLSA has a minimum salary test of $455 per week/$23,660 annually. The proposed regulations increase the minimum salary test to $970 per week/$50,440 annually (estimated index for 2016). The regulations also propose an increase in the minimum salary threshold to meet the highly compensated exemption from $100,000 to $122,148 in annual salary. It is not known if other forms of compensation such as bonuses or commissions will count toward the new salary threshold.

It is important to keep in mind that both the salary test and the duties test must be met to provide for the exemption. Raising the salary of an employee does not automatically make them exempt; the employee’s responsibilities are also a factor. Titles are of little value in determining actual job duties and are not given much weight in the analysis.

What employers need to know

Changes to the FLSA will happen in 2016 and employers need to comply. A workforce analysis is recommended to identify current positions and compensation levels, noting the current classifications and exemption categories as well as salaries. Identify those positions that fall under the new minimum salary threshold and ask:

■ Are salary adjustments feasible to meet the new minimum salary requirements and maintain the exemption?

■ Is managing overtime the preferred approach?

■ Are staff changes, promotions or reductions or job share arrangements appropriate?

■ Are changes in job responsibilities warranted?

These changes will certainly impact budgets, position classifications and how organizations approach future staffing needs as well as policies, procedures, benefits and morale.

Mary Beth Hartleb has 30 years of human resources experience and is the CEO of Prism Global Management Group, LLC, a human resources consulting firm providing full HR services to small and mid-sized companies, nonprofit organizations and government entities. Contact her through the Henderson firm’s website

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