On September 8, 2023, the US Department of Labor (DOL) issued a rule proposal that would drastically change the way employers navigate and comply with the Fair Labor Standards Act (FLSA). As businesses grapple with the proposed changes to the FLSA overtime rules, it’s essential to ensure compliance to avoid penalties. The projected changes might affect the overtime pay for many exempt employees, requiring companies to revisit their employees’ compensation plans as well a their individual roles and responsibilities. Here’s a breakdown of some critical steps you should think through as you prepare for this potential change:
Identifying and Auditing Affected Employees
Start by collecting your payroll and accounting records. It’s crucial to identify exempt employees earning a salary less than the projected minimum salary range, which lies between $1,059 and $1,158 per week. Also, pay attention to highly compensated employees (HCEs) earning below the anticipated minimum total compensation of $143,988 per year. Once you’ve identified these employees, delve deeper by examining their job descriptions, training materials, and actual hours worked. It’s beneficial to engage both employees and their supervisors to get a comprehensive picture of the duties performed and typical hours worked.
Revisiting Compensation Plans
Having identified the potentially affected employees, the next step involves reviewing and possibly overhauling their compensation plans. Here are some strategies you might consider:
- Increase salaries to maintain the exemption status, possibly through bonuses, incentive payments, or commissions.
- Opt to reclassify employees as nonexempt, adjusting their schedules or responsibilities to limit overtime hours.
- Maintain current salaries, but factor in overtime payments for hours worked over the standard 40-hour workweek.
- In some cases, adjust base salaries while accounting for overtime to ensure total weekly compensation remains consistent.
- Examine the feasibility of offsetting overtime costs through methods such as consolidating roles or automating certain tasks.
While devising these compensation plans, always factor in federal, state, or local wage mandates. Highly compensated employees require special attention; businesses can consider consolidating roles or examining whether they qualify under full duty tests. It’s prudent to consult with HR consultants and/or legal counsel to ensure that your new compensation structures are in full compliance with both the proposed FLSA overtime rules and any other applicable employment laws.
Applicable Duties Tests and Documentation
While salary is a significant factor, it’s equally important to ensure that exempt employees meet the FLSA’s duties tests. Gather materials like job descriptions and training records and confer with supervisors to validate whether an employee’s duties genuinely qualify them for an exemption. In some scenarios, employees might surpass the salary threshold but not meet the necessary duties criteria. Therefore, reclassification might be warranted.
Timekeeping and Communication
For businesses that don’t have an established timekeeping system, now is the time to invest in one. With potential changes in exemption statuses, maintaining accurate records of hours worked becomes pivotal. Existing timekeeping systems might also require upgrades to accommodate more nonexempt employees.
Moreover, any change, especially one related to pay and status, needs transparent communication. Delegate this responsibility to a senior manager who’s well-versed in wage and hour intricacies. Begin with a group meeting, explaining the reasons behind the changes, and gradually delve into individual implications. Preparing a set of talking points and follow-up documentation, like letters and handouts, will reinforce your message and address employee concerns.
Training is Essential
Lastly, training is crucial, both for managers and the newly nonexempt employees. For managers, the focus should be on understanding the new FLSA regulations, the revised company policies, and the nuances of supervising newly nonexempt team members. Employees, on the other hand, should be oriented about the changes, the reasons behind them, and any new responsibilities like tracking work hours or adhering to “off-duty” device policies.
The proposed FLSA overtime rule necessitates a thorough examination of current compensation structures, diligent planning, and transparent communication. Proper preparation will not only ensure compliance but also help maintain employee morale and trust.
Disclaimer: Auxo HR does not provide legal, accounting, or tax advice and this post should not be considered or relied on as such.