What Do The New FLSA Overtime Rules Mean For Me?

There has been a lot of hoopla and panic about the new FLSA rules.  In fact, few employers seem to understand how these new rules will affect them and their employees.  Here is a quick tutorial:

What are the new rules?

The new rules raise the minimum salary required to claim an exemption to the FLSA minimum wage and overtime rules under the professional, administrative and executive exemptions.  The new rules requires employees to earn a salary of at least $913 per week ($47,476 a year), up from $455 per week ($23,660 a year), to be exempt. The new salary level is equivalent to the 40th percentile of full-time salaried workers in the lowest wage census region nationally.  In addition, the new rules raise the threshold for the highly compensated employee exemption to $134,004, which is the 90th percentile of full-time salaried workers nationally, up from $100,000.

These new salary thresholds will be adjusted automatically every 3 years to maintain them at the same percentile levels.

When do the new rules go into effect?   

The new rules become effective on December 1, 2016. After that time, salaried employees who do not meet the new thresholds must be paid overtime for any hours worked in excess of 40 per week.

How will this affect me?

Simply put, employers must evaluate their workforce and determine which employees are affected by these new rules.  Exempt employees who earn above the new thresholds will not experience any change. It is important however, to make sure that these employees' duties actually qualify under one of the exemption tests.  If not, regardless of salary,  the employees are as non-exempt.  Those employees whose salary fall between the old and new thresholds will be most affected.  Employers may continue to pay these employees by salary, but most also keep track of and pay overtime for any hours worked in excess of 40 per week.  

Although the short-term effects seem to be increasing the take-home wages of some employees and the cost for employers, a lot remains to be seen regarding the longer-term effects of the new rules. While some newly non-exempt employees will have their overall pay increased by overtime, others may lose their jobs or effectively become more restricted in their work environment by their employers' efforts to contain costs and avoid overtime (employees with less flexibility may lose out on some projects).  Others, near the threshold, may receive an immediate small increase in salary so as not to bump them down to non-exempt status.  Much remains to be seen and there is no shortage of reasonable opinions and projections.    

How should I get ready?

• Start early! This is a great time to audit all employee FLSA designations to truly understand which employees work in positions that could be classified as exempt (depending on salary).  You may want to include in this analysis how much overtime may be expected in each position so as to more accurately understand potential labor costs.
• Take a new look at your budgets. If you rely heavily on the group that is being re-classified, figure out your expected increase in labor costs and how you will cover it.  In some cases, that may mean cuts in salaries or personnel, but if it you get out in front of it, your are assured much less heartache. Remember, you cannot lower pay or change your overtime policy retroactively.  
• Figure out your time keeping and overtime policies now, so you can make sure everyone understands what to expect and how to comply before the deadline. There is nothing wrong with policies that have employees clear overtime with a supervisor BEFORE working it or limiting total overtime eligibility.  The key is making sure ALL overtime worked is paid at the premium level.  That does not mean employees need to choose when or how much overtime they work.

• Do not punish employees for becoming "more expensive."  Unless absolutely necessary, do not roll back flexible work arrangements that may be working.  Instead, figure out how to make them work under the new system. For example, a person working one day from home and making it work, or with a schedule that is shifted, should be able to continue to do so.

• Do not make employees feel less valuable or accomplished because they are now "non-exempt."  Despite it being a worker protection, many employees view their FLSA  exemption as a social status.  Make sure they understand that this is a change to a technical legal distinction, which in no way correlates to their value as employees.  Do not make employees feel like they are "punching-the-clock" if it can be avoided.
• Be careful.  Bad reporting procedures, or even employee non-compliance with reporting procedures, do not exempt an employer from paying overtime.  Make it your business to know (and employees' responsibility to let you know).  
• If you need help with any of the above, make sure to reach out to employment counsel.  One phone call or email could save a lot of heartache (and money!)