The recent and long-awaited changes the Department of Labor (DOL) announced to the Fair Labor Standards Act (FLSA) overtime regulations are the most significant in over a decade and will have a heavy impact on both employees and employers.

At the recently held Eclipse benefits and HR conference, labor and employment attorneys alongside PlanSource HR, operations, and general counsel experts worked out some strategies aimed at helping employers prepare for the new rules that go into effect on December 1.

Understand how your employees will be affected

Currently, employers are required to pay all non-exempt employees overtime pay — at least time and a half for every hour exceeding 40 work hours in a week. One way to remember the difference between exempt and non-exempt is to remember that exempt employees are also exempt from sympathy — their boss can work them as hard as they want and they don't get paid any more.

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The final rule changes announced by the DOL in May will result in 4.2 million additional workers becoming exempt. The pay threshold at which white collar workers are exempt from overtime pay was doubled to $47,476 from its original $23,660. This threshold has not been updated in years, but the new rules require the threshold to automatically adjust every three years starting in 2020.

The first step in adjusting to these changes will be for employers to identify the individuals that will be affected by these rule changes and analyze each situation to find the best option.

Determine your course of action

 

From the perspective of the DOL, there are three clear options available for employers: They can either convert salaried employees that don't meet the threshold of $47,476 to hourly, and then pay them overtime when required; raise salaries so they meet that threshold and avoid overtime pay; limit hours of non-exempt employees; or do some combination of all three.

There are benefits and concerns associated with each of these options. Converting salaried employees to hourly is cost-effective, but creates the burden of tracking time for employees who aren't used to it, and could possibly be viewed as a demotion.

Raising salaries raises morale and doesn't require as much administrative work, but may also cost the most. Employers will be able to apply bonuses and incentive payments to up to 10 percent of the new salary threshold if they are in a pinch, but these catch-up payments may undermine the purpose of an incentive-based pay system and delay the inevitable job reclassification that will be necessary.

Strictly managing exempt employees' overtime will minimize the cost and extra administrative work, but will require policy changes and could negatively affect productivity.

Strategize to minimize cost without affecting productivity

The most cost-effective solution will be found in some combination of all the available options. There will have to be a reorganization of the workforce, shifting of responsibilities, reclassifying some salaried positions to hourly, giving certain positions bonuses, and raising some salaries. It will have to be a group decision, requiring collaboration between human resources, operations, and executives.

The most important aspect of making sure your business is ready for the new rules is driving a change in behavior and helping employees accept the reality of the reorganization. Clear communication with employees will be critical. Some policies suggested by the panel included enacting an email curfew for non-exempt employees, a system-wide gate preventing access afterhours, discipline for exempt employees communicating after hours and regulation of working from home.

These policy changes will undoubtedly raise concerns among employees. Exempt status is often tied to benefits, so it's not just their salary that's being affected. It raises the question of how much you want to discipline a motivated employee for working extra time — you will have to pay them overtime either way. Also, reporting time is going to be largely in their hands, so this will require some extra training.

Changing behaviors: Start now

Start a checklist of items for employers to get done by the end of the year so that they are ready when the law goes into effect.

By September, they need to identify the employees who will be transitioned to hourly, determine the costs associated with each option, and be realistic about the overtime that's going to be incurred. By October, they should determine the course of action and communicate the change to all employees. Then, by November, they can put the policies into effect, so by the time December 1st rolls around, the system is already up and running.

It will be costly up front to analyze and audit these shifts, but it'll be more costly in the long run if an employee is misclassified, and could even involve going to court. It's important to get it right the first time, so thinking through all of these factors sooner rather than later is paramount.

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