Are you an employer? If so, you’ve got a major challenge to accomplish in the next few months.
Brief Summary of New Fair Labor Standards Act Rule: Starting December 1, if you have a salaried worker making under $46,467 per year, you will either need to give them a pay increase, cut them to hourly, or start paying them overtime when they work more than 40 hours per week.
With the time left before December 1, we advise business owners to prepare by following the following five tips.
- Examine Current Pay and Classifications. One of the first steps for employers is to make sure they truly understand their employees’ compensation structure, classification and the rules around FLSA exempt vs. nonexempt status. Employees that earn more than the new threshold of $46,467 can be classified as exempt from overtime if their work consists mostly of executive, administrative or professional duties. This is where having a solid understanding of their actual work duties is critical. Employees who earn less than that new threshold are probably classified as non-exempt, meaning they can earn overtime.
- Monitor Employee Hours. Just as important as their classification and pay, it’s critical that employers assess the hours that their employees work, since that is at the core of overtime pay, if an employee ends up being non-exempt. One method employers can use is to either reduce a worker to part-time, or to minimize the amount of work a salaried (but non-exempt) worker spends doing work. Employers should pay special attention to both remote workers, and regular staff who frequently perform work tasks after hours, such as checking emails and responding to clients. Businesses may consider using a time and attendance system that tracks worker hours and can alert them (and their supervisor) when they near or exceed a 40-hour workweek.
- Compare the Costs of Pay. As mentioned previously, it may make fiscal sense in some cases to change a non-exempt employee/s from salary to hourly, and then pay them overtime as necessary. This can be most useful when an employee does not consistently work 40 hours per week, but it requires more attention be paid to managing their work schedule. While the net-effect may not be much of an actual change in compensation, however, this action may be perceived negatively by employees. So employers should communicate the actions in advance.
- Impact on Pay Equity. In order to ensure that employees are being paid fairly and based on their job, do not make changes on a per-employee basis, but instead based on their roles. This is especially important for businesses with low turnover, where an employee may have been in their same role for many years.
- Proactively Control Costs. If workflows in the business require employee action outside of normal working hours and that leads to overtime for non-exempt staff, the business has a duty to pay them overtime. However, this is a good time to reexamine those workflows that might push staff members into overtime. Is it in the best interest of the business for its staff to be working after hours, on weekends or at other times? If it isn’t critical to business function, is it worth what will be an added expense? If not, then establish workplace policies that diminish the amount of work that non-exempt workers perform outside of traditional working hours. This can also be positioned as an effort to increase morale.
Businesses can use the next several months to analyze their business labor and productivity, and get a better understanding of what they will need to change to minimize the effects of the new rules. It’s also a good opportunity to reassess actual jobs, requirements and descriptions.
Complete Financial Services is here to help you plan!
Complete Financial Services is here to help you plan for this major change! Contact us today and follow us on Facebook for weekly tax tips!