Preparing for the FLSA Overtime Rule Changes

On July 6, 2015, the Department of Labor (DOL) published proposed changes to the Fair Labor Standards Act (FLSA), expected to become effective in 2016.

At a recent Society for Human Resource Management conference, Tammy McCutchen, an attorney with Littler in Washington, D.C., and a former administrator of the DOL’s Wage and Hour Division, told attendees she believed the rule would likely be published by July 7th, and take effect on Labor Day, September 5th. Alternatively, the rule might be published September 2nd, to take effect Nov. 1st (just before Election Day).

What can you do to prepare?

1. First, identify the employees who are currently exempt but paid less than $50,440 annually.
2. Next, determine the number of hours they typically work. If your exempt employees are not required to track their hours, this might be tricky; so now would be a good time to implement a system for tracking their time.
3. With this information in hand, you can understand the financial impact. Options include raising pay to the new threshold level, reclassifying employees as nonexempt and paying overtime, or lowering pay to offset the overtime requirements. You will also need to review job descriptions and possibly reassign exempt tasks.
4. Finally, you will need to have a plan in place to ensure compliance when the regulations become official.

Weighing Your Options

Raising pay to the new level is a cost increase; it works well for deep-pocketed companies or companies with few employees that would get the raise. Reclassifying employees can be a sensitive employee-relations issue. Many exempt workers strongly identify with the perceived “professional” status that accompanies being a salaried worker, and reclassification might feel like a demotion.

Lowering pay to offset the overtime is an option best deployed carefully. Not only might it be seen as a pay cut (despite the offset), it also requires very good time reporting data. If you don’t know for certain how much time the impacted workers are putting in regularly, you will end up with an “offset” that is too high or too low. A too-high offset means you have new cost increases to manage; too low, and the employee is likely to be unhappy with the reduced compensation.

Don’t forget the new time reporting requirements you may soon face. Accurate and timely time reporting is critical, because once the rule is finalized, the DOL auditors will be out in full force to ensure employers are in compliance.