Ten-Step Response to FLSA Overtime Changes

by Laura Ingram
AAIM Employers’ Association

Many companies continue to struggle with implications of the overtime regulation changes coming into effect December 1st. There is more involved than meeting the new salary threshold of $913 a week, or $47,476 per year, for the white-collar exemptions.

Leaders are working through effective implementation, including the appropriate classification of jobs, aligning compensation strategies, preempting wage compression, and evaluating wage and hour compliance. Move your business forward with the following holistic, 10-step response and supporting implementation.

  1. Update job descriptions to reflect duties test criteria. One big issue is lack of information in job descriptions to reflect the applicable FLSA duties test for exemption. Some companies have been using a questionnaire to help incorporate duties test information into descriptions, but the Department of Labor will dig deeper to see if the descriptions actually match job content.
  2. Ensure that jobs classified “exempt” meet the duties tests. Wage and hour litigation has been the number-one area of employment litigation for many years, and audits have dramatically increased. Cases are typically brought as class and collective actions, and it's often difficult for employers to win, as plaintiff's attorneys have an easy burden to overcome. Experts expect increased enforcement in light of the changes.
  3. Perform compensation benchmarking. Before you make changes, benchmark the jobs of impacted employees, their peers and managers to inform pay strategy. You may even want to evaluate your whole pay structure. Scrutiny around FLSA status has prompted some companies to move from a single base-pay structure to separate exempt and non-exempt structures for easier administration and clarity for managers.
  4. Include non-discretionary bonuses in overtime calculations. This is one of the biggest non-compliance areas, as it is often overlooked. For non-exempt employees, you must recalculate the regular pay rate for the bonus period to include any non-discretionary (formulaic) bonuses paid. Then recalculate overtime payments made during that period to reflect the revised overtime rate, and pay the difference.
  5. Determine other program implications. Companies may have different benefit programs and workplace practices (such as office arrangements or perquisites) for exempt and non-exempt jobs. These differences could result in hidden costs and employee relations challenges when reclassifying employees.
  6. Update and publish supporting policies. Important policies for non-exempt employees include overtime approval and leaving the workstation for lunch. Litigation often centers on the meal break. If an employer can't establish that the individual took scheduled meal periods, compensable time could exceed 40 hours, requiring overtime pay. Regulations state that the employee must be completely relieved of duty during non-compensable time.
  7. Prepare and train newly non-exempt. It is important to train people moving to non-exempt on how to track hours for accurate record keeping. In addition, if employees are not clocking in and out for their meal periods, for documentation you may consider having them sign an acknowledgement when they receive their paychecks that the paycheck properly compensates them for all hours worked that period.
  8. Train managers. Start by training managers on the changes and implications. Include the importance of recording all the time worked, the company's obligation to pay for all time worked, policies on overtime authorization, and disciplinary actions when policies are not followed. Follow up with clear talking points managers can use when communicating.
  9. Leaders meet with reclassified employees. Leaders can emphasize the value of reclassified employees regardless of overtime eligibility. There is a culture shift involved for these employees and even an emotional element, so personal communication is critical. Leaders should also be prepared to explain the regulation at a high level and the importance of not working after hours without approval.
  10. Communicate to the whole organization. These changes have broad-reaching impact, so communicate to your whole organization before it happens. It will be important for people to understand that some employees may not be as accessible as they used to be. (For example, they might not be checking email in the evenings.) Communicating across the organization is an important piece of the puzzle. iBi

Laura Ingram, SPHR, SHRM-SCP, is Vice President, HR Services for AAIM Employers’ Association.

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