It's Time To Deal With Over Time

There are big changes coming to the way small businesses must handle overtime exemptions for salaried workers, and now’s the time to get in front of these very important regulatory changes.

The Fair Labor Standards Act (FLSA) Wage and Hour Division provision was published in May of 2016 by the Department of Labor, and it goes into full effect on December 1, 2016 . As you’d expect, at 160 pages this is a complex piece of rulemaking. But at its core, it changes the rules about who is entitled to overtime pay, and who can still be considered exempt.

THE BOTTOM LINE: IT COULD COST YOU

Small businesses in particular are going to feel the pinch if employees typically work more than 40 hours per week, since the rules of overtime exemption now set a much higher salary threshold than before. For instance, as of December 1, 2016: .

  • To qualify as exempt, an employee must earn $913 per week (up from $455 previously). This equates to an annual gross salary of $47,476 (up from $23,660 previously).

  • These minimums are subject to further increases every three years. This review and adjustment will be based on census data regarding income levels nationwide. The first review will come in 2020.

  • Don’t be fooled... just because an employee passes the Duties Test - that is, that they are Administrative, Professional, Executive or IT - if they make less than $47,476 then you are required to pay them overtime starting December 1, 2017.

So from a small business perspective, FLSA’s changes aren’t just a game-changer—they may be a back-breaker.

THE ROLE OF TECHNOLOGY

Many small businesses have traditionally made full-time workers exempt, and therefore didn’t employ the technology or process to track actual hours worked. As a result, they lack a reliable historical perspective of the new costs when those employees are no longer exempt.

This is where the right technology can make all the difference. By adopting the right analytical technology, an employer can get a great deal of visibility into what the potential cost liabilities will be. This kind of forecasting is critical to building a plan to deal with the FLSA changes.

GET IN FRONT OF FLSA NOW

There is no one simple way to address the coming challenges. For any given employer, it will take a strategic mix of tactics to minimize impact to the business, and to the employees. Here are a few options to consider:

  • As mentioned above, the first step is to implement a Time and Attendance technology and process. It doesn’t cost much and the data it provides can be priceless. It can also flag employees who are getting close to their maximum hours to help avoid overtime costs.

  • These minimums are subject to further increases every three years. This review and adjustment will be based on census data regarding income levels nationwide. The first review will come in 2020.

  • Factor in the overtime premium when converting an exempt employee’s salary to non-exempt hourly wage—that is, pay less per hour than would bring the employee to his old salary in a year, and let overtime make up the difference.

  • While it’s no one’s ideal solution, limiting or reducing work hours is sometimes the only way to stay in compliance... and stay in business.

Ready or not, FLSA is coming. Make sure you’re prepared with the insight and plan to help your business – and do it soon. December 1 is closer than it seems.
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