On May 18, 2016, the Department of Labor issued much-anticipated changes to FLSA overtime regulations. The following are a few of the key amendments that go into effect December 1, 2016:
Notably, the rule does not alter the DOL’s “duties test” for determining whether an employee’s job duties are “white collar” and thus eligible for exempt status. Thus, keep in mind that even if an employee meets the minimum salary level, he or she still must perform “white collar” duties.
What Should Employers Do Now?
Employers with now-exempt employees who no longer meet the minimum salary level face a choice between raising salaries or reclassifying those employees as non-exempt. However, reclassifications can be managed in several ways to minimize the impact on the business. To partially or wholly offset overtime costs, employers could adjust compensation downward based on projected overtime costs, limit workers to 40 hours per week, and/or hire more workers as necessary to eliminate need for overtime work.
Each option has pros and cons, but all employers at least should take the following steps by December 1, 2016:
In addition, the new rules will also likely present personnel challenges. Reclassified employees may view the conversion to non-exempt status as a demotion – especially if they are now required to punch a clock (track time), given inflexible work hours, or rendered newly-ineligible for certain perks and bonuses.
However, the DOL reiterates that non-exempt employees are not required to “punch a clock,” as long as the employer retains certain records tracking their hours. For employees on a fixed schedule, employers may use the schedule as a baseline and indicate changes to the extent actual hours worked vary from the schedule. For employees on a flexible schedule, employers may record total hours worked daily (but need not record when, during the day, those hours were worked).
That said, there likely will be some devils in the details. Employers will need to review the FLSA regulations and its own workforce and infrastructure to determine the best system for managing reclassifications and tracking nonexempt employees’ working hours. Employers also should consider whether the new rule impacts other policies requiring differentiation between exempt and non-exempt employees. For example, travel time pay requirements for non-exempt employees may reduce travel opportunities for newly reclassified employees.
In sum, the new DOL rules substantially increase minimum salary levels, which will then increase every three years. Employers should take steps now to ensure compliance with the new regulations by December 1.