Earlier this year the Department of Labor (DOL) released their highly anticipated regulation changes for the overtime exemptions under the Fair Labor Standards Act (FLSA). These regulations will not only change how some employees are paid, but how some employers do business. With an estimated 4.2 million employees affected, all employers should be aware of the final regulations and how they will affect their business.
- The salary threshold will increase to $913 per week or $47,476 per year while the threshold for highly compensated employees will increase to $134,004 per year;
- the salary threshold will automatically increase every three years starting January 1, 2020;
- 10 percent of the salary threshold can be made up of nondiscretionary bonuses and incentive payments; and
- an effective date of December 1, 2016.
Since the regulations were released in May we’ve conducted presentations and have had countless conversations with business owners finding that there are a lot of questions about the law, the new regulations, and how they will affect the business community. Below is a list of commonly asked questions.
- I pay my employee a salary over the threshold. Does this make him exempt?
An employee’s pay is not the only factor to consider when classifying an employee as exempt. The employee must also perform exempt level work (duties test).
- My employee’s title is manager. Does this make her exempt?
Job titles and descriptions should not be the sole resources used to determine if an employee can be classified as exempt. Employers should look at the actual job duties performed by the employee to make the determination. The employee must also meet the salary threshold and the salary basis test.
- Can I make all of my employees non-exempt?
An employer can always classify employees as non-exempt and pay them hourly. Remember that non-exempt employees are subject to overtime pay for hours worked over 40 in a work week and must track their hours.
- How do I calculate an hourly rate for my new non-exempt employees?
If your employee rarely works over 40 hours in a work week you can use the below calculation.
40 Hours per Week
If your employee consistently works over 40 hours in a work week you can use the below calculation. The example assumes the employee works consistently 45 hours each work week
40 Hours per Week + (5 Hours of Overtime x 1.5)
- Can I pay my non-exempt employees a salary instead of hourly?
Yes. The set salary would pay the employee for a 40 hour work week; when setting this keep minimum wage in mind. Employees who work over the 40 hours would still need to be paid overtime for those additional hours; therefore they must track their time.
- Can a non-exempt employee flex their hours within the two week pay period to avoid overtime? (Example, work 80 hours in two weeks, 34 one week 46 the next).
Non-exempt employees cannot flex their time between two work weeks to avoid overtime, however, they can flex their time within the work week. In the example above the employee would be paid overtime for the 5 hours worked over 40 during the second week. Only governmental agencies can use comp time.
- If my employee works 30 hours per week can I prorate the salary threshold based on her hours worked?
The salary threshold must be met regardless of the number of hours an employee works during the work week. The threshold cannot be prorated for part-time work.
- Do my new non-exempt employees have to “punch a timeclock”?
Non-exempt employee are required to track their time, however, the DOL does not require the use of a timeclock. A paper timecard or other form of tracking is acceptable, as long as it is accurate.
- What else should I consider when moving employees to non-exempt?
Employers should look over their policies and procedures to ensure all policies are written for non-exempt and exempt employees. Here are two that should be reviewed/developed.
Overtime Policy – an employer can require preapproval for all overtime hours worked. Keep in mind that if an employee works overtime without getting approval you still have to pay them the overtime.
IT/Technology Policy –Do your non-exempt employees have access to their e-mails after work and do they check them? These employees must be paid for all hours worked, even if those hours are outside of their normal working hours. Make sure your IT/Technology policy outlines your expectations for afterhours work/access to e-mails.
- Is there a requirement to provide notice to affected employees?
The FLSA does not require employers provide notice to affected employees. I encourage employers to put together a communication plan that will inform employees how these changes will affect their position, income, and how they perform their job.
If you need more information or have specific questions that aren’t addressed above please contact me at 605-716-8096.