Contributor: Kevin Grey, Warren Whitney’s Human Resource Director
WHAT BUSINESS OWNERS NEED TO KNOW
On September 24, 2019, the U.S. Department of Labor (DOL) announced a final rule increasing the earning threshold to exempt executive, administrative, and professional workers from the Fair Labor Standards Act (FLSA) minimum wage and overtime pay requirements.
The new rule, effective January 1, 2020, raises the federal overtime exemption threshold from $23,660 per year ($455 per week) to $35,568 per year ($684 per week). This law was last updated 15 years ago.
To better understand the new overtime law, Warren Whitney’s Human Resource Director, Kevin Grey, explains:
- The meaning of the new federal overtime rule
- Ways to be cost-effective
- How to communicate the change to affected employees
- Penalties for non-compliance
1) The meaning of the new federal overtime rule
This law impacts employees currently classified as salary exempt that are making over $23,660 a year and under $35,568 a year. For these employees, you will be required to:
- Reclassify the employee as non-exempt (if appropriate).
- Compensate the employee at time-and-a-half as overtime pay for any hours worked in excess of 40 hours a week.
Employers should analyze their salary exempt workforce in consideration of the new threshold and communicate any changes to the affected employees before it takes effect on January 1st, 2020. This is a good time to update your position descriptions as you conduct your review.
There are additional provisions under the final rule to consider:
- The duties requirements for these employees remains the same.
- Non-discretionary bonuses and incentive payments (including commissions) may be used to satisfy up to 10% of the new salary level requirement.
- The annual salary level for classified highly compensated employees is being raised from the current level of $100,000 per year to $107,432 per year.
- The final rule does not include automatic increases to the threshold.
2) Ways to Be Cost-Effective and minimize the impact on your balance sheet
i. Pay Overtime as Necessary
If your employees typically work 40 hours a week and occasionally or seasonally work overtime, it might be advantageous to reclassify them as non-exempt. In this scenario, you would budget for overtime instead of raising their yearly salaries above the threshold. Limit workers’ hours to 40 hours a week. If possible, redistribute workloads to ensure that non-exempt employees remain within a 40-hour workweek.
ii. Hire Temporary Workers
To limit your non-exempt employees to a 40-hour workweek, you may find the need for the occasional temporary worker to meet business demands. Hiring temporary workers can be more cost-effective than either raising salaries to be above the threshold or paying overtime.
iii. Raise Salaries above the Threshold
If you have employees consistently working more than 40 hours a week and these employees are already being compensated at or near the salary threshold, it might be worth considering raising salaries above the $35,568 threshold. However, keep in mind that the employees’ duties must pass the Duties Test required by the FLSA. In the event of a DOL audit, the job description must support the exemption. If it is not within your budget to increase salaries, you will have to reclassify the salary exempt positions to non-exempt.
3) Be sensitive when communicating the change
There are employees who tie professional esteem to being salary exempt. If you determine that paying on an hourly non-exempt basis is more cost-effective for your business, be sensitive to the affected employees when communicating the changes. Even if there is no change to their income or duties, they may perceive their now non-exempt position to have less professional status.
In Virginia’s particularly tight labor market, effectively disseminating information to your workforce is important to ensure your employees don’t feel slighted as your business moves to ensure compliance with new regulations.
4) DOL Penalties for non-compliance under the FLSA
Penalties and sanctions for non-compliance with the FLSA are severe and aren’t a risk worth taking. In addition to the back payment of lost wages to all affected employees, willful violators may be prosecuted criminally and fined up to $10,000. A second conviction of violating the FLSA can result in imprisonment. Employers with repeated violations may be subject to fines of $1,000 per incident.
All businesses must comply with FLSA rules to not only avoid penalties and/or sanctions but to also protect their most important investment; their employees. Warren Whitney’s Human Resource professionals have hands-on experience helping organizations with HR compliance. If you have questions about the new overtime rule or other compliance-related issues, please contact Kevin Grey at 804.282.9566 or firstname.lastname@example.org.
Learn more about Kevin Grey www.warrenwhitney.com/kevin-grey/