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Blooming azaleas are a sure sign of early spring…in the world of professional golf, it’s time for “The Masters” in Augusta, GA where the best players on the planet will be competing for the coveted Green Jacket after spending many previous months preparing for the most celebrated event on the PGA tour.

Similarly, it’s time to prepare and to “tee up” your organization’s position on how you are classifying jobs as either exempt or non-exempt. Why? Because as many of you know, the Department of Labor (DOL) has been working on revising the Fair Labor Standards Act, the regulations that determine which workers are eligible for overtime pay or not.

Recently, the DOL sent their final recommended rule changes to the Office of Management and Budget (OMB). Based upon a review of the most recent list of changes, millions of employees currently considered exempt from overtime could be impacted, as their employers determine whether to reclassify them as nonexempt or not. Similar to the tournament player’s preparation for the Masters, smart organizations have been preparing over a year for the rule’s implementation. If you aren’t up to speed on all of this upcoming legislation, here’s a brief overview:

Exempt level status is in part determined by three things;

  1. Salary Basis test. A predetermined amount of pay that does not change with the amount of hours worked.
  2. Salary Level test. The current minimum annual is $23,660 and highly compensated is $100,000. The new rules propose increasing these levels to $47,892 and $122,000 respectively.
  3. Duties test. The duties a person performs in the scope of their job such as administrative or professional duties defined by the regulations.

The first implication of the rule changes is an increase in payroll costs that could be substantial based on where employees are currently compensated within the pay range, since the proposed salary level test will be increased by more than 100%! Companies should review where their affected employee’s salary is in relation to the proposed salary threshold to determine how many – and which – employees could be impacted by the new rules.

A second area of consideration for companies is how they will deal with the number of hours worked, as well as the effect on part time employees and alternative work week schedules.

And finally, an area which may also be affected by the new ruling is the duties test, although this review may come later in 2017 as the presidential election in November may have an impact on any changes to the proposed ruling. Based on a number of publications and sources, one possible solution to the “duties test” could be the adaption of California's requirement that 50 percent or more of an employee’s time must be spent on overtime-exempt duties each week for the position to be classifiable as exempt.

Top Implications to companies

According to SHRM (Society of Human Resource Management), there are several areas within your organization that will feel the effect of the proposed FLSA changes,

  1. Significant Impact. Employees and employers across every industry and sector will be impacted. Most employers covered by the FLSA will need to analyze employee classifications and make other changes, by the anticipated 2016 effective date which will be established in the final rule. According to DOL, 11 million employees will be impacted.
  2. Salary Level Will Increase. To be exempt currently, workers must make more than $455/week ($23,660 annually). The proposed rule sets the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers which for 2013 were $921 per week, or $47,892 annually. If the 40th percentile approach is adopted, the 2016 level is projected to be $970 a week, or $50,440 annually. This will impact all sectors, but it will disproportionately affect the non-profit and service sector industries, as well as certain geographic areas of the country.
  3. For the First Time Ever, DOL Proposes to Automatically Raise the Salary Level. The Department is proposing to automatically update the salary level (including for highly compensated employees) on an annual basis, either based on percentiles of earnings for full-time salaried workers or based on changes in inflation.
  4. Changes to Highly Compensated Employees (HCE). The Department is proposing to set the HCE annual compensation level equal to the 90th percentile of earnings for full-time salaried workers ($122,148 annually), or based on changes in inflation. Currently, in order to come within this exemption, an employee must earn at least $100,000.
  5. Feedback Sought on Duties Test and Nondiscretionary Bonuses. While no changes have been proposed yet, the regulation acknowledges challenges associated with the duties test and seeks additional examples regarding specific occupations. Similarly, the Department wants to hear from employers about the possibility of including nondiscretionary bonuses to satisfy a portion of the standard salary requirement.
  6. State Law Application. Employers in states with wage and hour laws that are more restrictive in their application (for example, California) will need to review their coverage requirements under federal law in light of these proposed changes.
  7. Workplace Flexibility Reduced. Changes will require employers to reclassify a significant number of employees from exempt to non-exempt status, requiring tracking of hours worked, resulting in the loss of workplace flexibility.

If your current exempt employees are required to perform hourly rated work as part of their normal duties, companies need to determine what the nature of the work is, how much time is spent performing it, and consider how that work can be changed, delegated or eliminated, as well as if it falls within the new regulations.

When the new rulings are made available, companies should review the final publication as soon as possible (if they are not already following the proceedings) and take action to address how the changes to the FLSA regulations will affect their organization. Consider which positions should be exempt vs non-exempt based on the new FLSA regulations and not on job title. As an example, just because someone has the title of “Manager” does not mean they are not eligible for Over Time payments. Some areas to look at are lower level accounting, administrative, entry level engineering positons and manager positions in the retail and hospitality area.

An additional area that companies should review is how much work is performed “off the clock” by those currently considered “exempt.” These duties could come under review if the “duties test” is reviewed in the future. Off-the-clock working violations can be problematic for employers, including failure to pay for all time worked by not properly recording all work time.

HOW CAN WE HELP

Orgwide can assist you in determining the duties or tasks that are performed in affected positions in by the FLSA proposed rulings. Call us if you need to discuss in more detail.

Click Here for the proposed ruling of the Federal Register from the Department of Labor, Wage and Hour Division (29 CFR Part 541) regarding the proposed OT rulings. Additionally contact your legal counsel to determine how the proposed regulations will affect your organization.

With a little more preparation time and review of the jobs in you organization, you too will be able to be prepared and compete in one of the biggest venues for businesses in this area for some time.  

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