4 Steps to Prepare for the Proposed FLSA Overtime Changes

by Mammoth Team on May 12, 2016

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This is part 1 of a 3 part series on the sweeping FLSA Overtime Changes planned to be announced this year. This article focuses on what employers can do to prepare for the changes.

Part 2 will highlight some specific company policies you should consider updating in order to comply with any new overtime rules, as well as how to communicate the changes to your employees. In Part 3, we’ll examine the actual rule changes announced and what you should do to implement them.

Some dramatic changes soon may be in store for the way you manage employee overtime. The Department of Labor is expected to announce in May sweeping new overtime rules that could affect as many 5 million workers in the U.S.

The DOL has proposed significantly raising the minimum annual salary requirement for employees to qualify as exempt -- from the current level of $23,660 to as high as $50,440.

Once the changes are published, employers will likely have only 60 days to comply. Here are 4 steps you should be taking now to prepare you and your employees.

 

Step 1: Identify Which Employees Could be Affected

Determine which, if any, employees are currently classified as exempt, but are making less than $50,440 per year. The proposed rules indicate that the salary minimum may increase each year with the cost of living, or some other indicator, so keep in mind that the exemption status of employees currently being paid just over the minimum could be in jeopardy just one year after the rules become effective.

 

Step 2: Figure Out How Many Hours They Currently Work Each Week

To make the best decisions around employees who will either need to be reclassified or given a pay increase, you need to know how many hours they are actually putting in.

Don’t be tempted to simply calculate each employee’s hourly rate assuming they work 40 hours a week. You may be surprised.

For example, a manager on your team may be currently putting in 60 hours a week on a regular basis. If she’s making below the new minimum salary threshold to be exempt, she would qualify for 20 hours a week of overtime. That would result in huge pay increase.

On the other hand, you many have an efficient executive who always meets his deadlines. He’s putting in 30 hours a week. If he’s paid by the hour after the overtime changes go into effect, he’ll likely see a significant pay decrease.

 

Don’t be tempted to simply calculate each employee’s hourly rate assuming they work 40 hours a week. You may be surprised.

 

Step 3: Do the Math

Once you’ve accurately determined the number of hours worked per week for your exempt employees near the new proposed exempt salary threshold, you’re ready to crunch the numbers and see where it may make sense to give currently exempt employees a pay increase in order to get them to the new salary threshold, or conversely, which exempt employees you’ll start paying on an hourly basis.

For example, if Employee A currently makes $48,000 a year, it may be beneficial from an administrative and morale perspective to gives her a $2,440 raise in order to reach the $50,440 exempt threshold.

On the other hand, consider the efficient executive, Employee B who was putting in 30 hours a week. If he’s also making $48,000 a year, paying him hourly would result in high hourly rate of close to $31 (1,560 hours worked a year divided by $48,000)  in order to match his current salary. If you had been under the impression that he was working closer to a 40-hour week, and that his services are not worth almost $31 per hour, you may be facing a harder conversation.

 

Step 4: Look at the Big Picture

Once you have your numbers in hand and have considered the feelings of employees affected by this change, take a moment (or a day, or week) to consider the employees who are technically unaffected by the new rules. This may be the hardest issue to tackle. Consider Employee A who works 40 hours a week. If she receives a $3,000 raise, will her manager who frequently works overtime and makes $54,000 also receive a raise?

If you convert a manager to an hourly wage which ends up being lower than a non-manager, does that send the non-manager a message that moving up the hierarchy is a bad idea?

Whatever decisions you make, try to ensure that they are as impartial as possible and that you’re documenting the business-related reasons for each change.

There’s obviously a lot to consider here. For more detailed information on calculating hourly wages and best practices on how to approach reclassifying exempt employees to non-exempt, download our free FLSA Overtime Changes Planning Guide.

Download Guide

In part 2 of our series on the FSLA Overtime Changes, we examine some specific company policies employers should consider updating in order to comply with any new rules, as well as how to communicate the changes to your employees. 

Topics: Compliance, Best Practices

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