December 1st is looming on the horizon and it means change for many organizations. For the first time in decades, the Fair Labor Standards Act pay thresholds are changing – and the change is huge. If you’re in HR, you’re probably in the middle of finalizing adjustments to your pay structure. If you run a business and you’re wondering what I’m talking about, keep reading!
Very simply, the FLSA is what allows us to categorize employees as exempt from overtime (traditionally thought of as salaried) and non-exempt from overtime (usually hourly and then paid overtime after 40 hours per week). The FLSA has a whole slew of rules to help define which jobs should fall into which category, and the criteria tend to combine a base pay rate with specific roles or responsibilities. There are many ways an employee could be exempt and therefore not be paid overtime regardless of how many hours are worked in a given week (note that overtime rules slightly vary by state and I’m in Texas, so that’s what I’ll stick to!). One of the most common exempt classes are bona fide teachers (just calling a position a teacher isn’t enough – the employee needs to meet certain criteria) and professionals. Professionals are probably the largest group of exempt employees in companies. These are people who have advanced knowledge in their field of work that is primarily intellectual in character and who have to exercise substantial judgement in their work. This one can result in a lot of gray area due to the inherent subjectivity in the definition.
Back to the pay issue in defining who is exempt versus non-exempt. Today (October 26, 2016) an employee earning under $455 per week cannot be considered exempt regardless of duties. Translation: in most cases, employees making under $23,660.00 per year need to be paid overtime no matter what. As of December 1, 2016, that weekly number changes to $913. So, in a few weeks, employees making under $47,476.00 per year need to be paid overtime for anything over 40 hours. This is in addition to meeting the relatively unchanged duty requirements.
There are a whole lot of employees out there who are impacted by this change. On the surface, it’s positive – more people are eligible for overtime pay. The truth in practice, though, is that it can have a negative impact on companies and employees. Many companies are simply cutting hours – reducing work hours to 40 or under per week to ensure that they don’t incur the additional expense. Some companies are reducing management numbers and hiring more line workers to control costs by only paying overtime to the lowest paid employees. On the upside, in some cases the employer is just bumping the salaries to push them above the threshold. Watch this number, though, as the changes in FLSA provide for increases in the future.
Behind the scenes, this change is a huge issue. The logic of it is understandable, but the application is a bit more challenging. Whether we agree with it or not, it’s coming – and quickly. One of the more interesting impacts is the human side – employees often think of salaried positions as a step above hourly jobs. The psychological impact of being moved from salaried to hourly can’t be ignored – employees don’t really care why it’s happening. They still often feel as though it’s a demotion.
The other area of caution is related to the connected nature of our world. Salaried employees check their work email from their phone or home computer, take calls on their commute to work, and in many other ways work outside of traditional business hours. If a non-exempt employee does that, he or she is entitled to compensation. Non-exempt employees need to absolutely leave work at work – no emails after hours, no calls, no contact unless the company is willing to track those hours and compensate employees for them. The additional work (and expense) related to tracking and processing this may or may not be worth it, but the risk of not doing it correctly is high given the amount of attention given to FLSA issues right now.
Keep in mind that the change in base pay is only one of the changes impacting FLSA compliance as of December 1. It’s advisable to be ready prior to whichever pay period includes that date to ensure compliance. And even if you’re running a business that isn’t impacted by the changes at this time, it’s prudent to understand what the changes mean if you have any employees at all, or intend to hire in the future. At this point, it doesn’t appear that the implementation will be delayed, so we all need to be ready.
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