Days before the new FLSA policy was to be implemented, a U.S. District Court Judge issued a temporary injunction blocking implementation.
What should employers do as a result? ADP posted a helpful article about how to respond to the block of the overtime rule.
Whatever happens regarding this law, it's good business practice to make sure your employees are classified and compensated properly. Read the blog below to learn more.
On Dec. 1, 2016, new regulations go into effect under the Fair Labor Standards Act (FLSA) regarding the minimum threshold for classifying salaried employees. The purpose of the threshold is to determine whether or not non-exempt salaried employees should be entitled to overtime pay for working over 40 hours in a week.Nervous employers are asking questions about the changes. Here are some answers.
This is just a minor tweak, right? Wrong. The basic benchmark that defines a salaried employee is taking a huge leap. As of now, the minimum annual pay for salaried employees is $23,600, a standard set by the U.S. Department of Labor (DOL). On Dec. 1, that figure will jump to $47,476.
Yikes! So let's say I'm paying my salaried employees $40K a year. The government is making me give them each a $7,476 raise? No — although that might not be a bad idea in some cases. It all depends on a) if the employee is considered non-exempt (see FLSA duties test for exemption), and b) how much overtime your salaried employees put in.
If they are non-exempt and all work 40 hours a week (or less), then you're fine. But if any of your non-exempt $40K salaried employees work overtime, you'll have to pay them the equivalent of time-and-a-half for every hour beyond the 40-hour threshold. So it's a simple math problem. If you end up paying a salaried employee $15,000 a year in overtime, then suddenly that $7,476 raise doesn't look so bad.
Further, you need to be aware that commissions and bonuses paid less than quarterly are not included in the minimum annual pay calculation. So if you're an employer who pays $10,000 in commissions and bonuses annually to a non-exempt employee who makes $40,000 per year, you may be required to pay overtime.
Do I have any other options? Maybe, but you need to tread carefully. You might be able to reclassify some salaried employees as hourly employees — but either way, you have to document hours and pay time-and-a-half for anything over 40 hours a week. So that could amount to six of one, half a dozen of the other. It could also have unintended consequences that lead to morale problems.
You might also be tempted to shift salaried employees to "independent contractor" status. However, that's extremely risky. If it's obvious that you made the switch just to circumvent the law and you continue to treat those "independent contractors" as if they were salaried employees, you may open yourself up to serious consequences.
Here's how complicated these compliance issues can be: The DOL itself was hit with a $7 million judgment involving unpaid overtime for its own employees. So this isn't something to mess around with. Consult a professional.
Why do we need these changes, anyway? Basically, they're designed to bring the salary threshold in line with the times. (It has increased just once since the 1970s.) The current minimum salary, $23,600, works out to about $11.35 an hour for a 40-hour week.
More to the point, the so-called "white-collar exemption" means employers don't have to pay salaried employees overtime. So a salaried employee at the current minimum threshold who worked a 50-hour week would make just $9.08 per hour. Clearly that's not the scenario Congress had in mind when the exemption first went into effect.
And be sure to set up an appointment with your accounting services provider today. Don't wait until Dec. 1 to discover you're not in compliance.