Compliance Tips For New Overtime Requirements

Major changes are coming to the way US businesses implement overtime - as an employer, understanding the new regulations is a crucial step towards compliance.

On May 18, the Department of Labor finalised revisions to the Fair Labor Standards Act, including important changes to overtime regulations for all US workers. President Obama announced the revised FLSA would come into effect on December 1, 2016: the delay gives employers a little breathing room to make sure they're prepared to implement the new rules correctly and, importantly, avoid compliance penalties.

What does the FLSA do?

The revised FLSA will affect the way employers track work hours and process overtime for their employees. It essentially extends new protections to over 4 million workers across the USA.

Under the FLSA, employers must pay their employees a standard federal minimum salary for time worked - and pay overtime (at time-and-a-half) for anything in excess of 40 hours per week. There are exemptions to the overtime threshold rule: employees earning in excess of the minimum salary are considered  'exempt' - as are 'highly compensated' workers, that is, those who are amongst the top 20% highest paid, or who own more than a 5% stake, in their company.

So, what are the details of the revised FLSA?

  • The federal minimum salary has been raised from $23,660 per year ($455 per week) to $47,476 ($913 per week) - with obvious effects for the number of employees across the US who now qualify for overtime pay after 40 hours of work.
  • The minimum salary for highly compensated employees is also increased - from $100,000 to $134,004.
  • All companies must put a mechanism in place which automatically updates compensation levels for exempt employees every three years.
  • Employers may use nondiscretionary bonuses and incentive payments to meet up to 10% of the FLSA-modified salary, including commissions.

Compliance Risks

Employers who violate the FLSA are liable for both the shortfall in wages and liquidated damages. Those non-compliance fines can mount up - especially if violations cover multiple employees - and quickly reach tens of thousands of dollars. The December 1 deadline for compliance may seem a long way off but, given the potential penalties (financial and reputational), it's worth getting to grips with the new FLSA sooner rather than later.

Here are some useful tips for employers working to fulfil their new FLSA obligations:

Re-evaluate Workloads: 

Highly compensated employees consistently working in excess of the 40 hour threshold could end up costing your organisation a lot of money. It may be worth assessing ways to decrease their workload...

  • Consider reassigning tasks to other employees who may be working a sufficiently lower number of hours, or who are on a lower pay rate.
  • Hiring additional staff may allow you to spread the workload for everyone - and reduce the time it takes for existing employees to complete tasks.

Track Hours: 

Employees who don't track their work hours make it difficult (or even impossible) for employers to know whether their organisation is complying with FLSA regulations...

  • Automated time and attendance tracking systems let employers monitor employee hours with a high level of accuracy.
  • Work-hour data can pulled from automated systems quickly and easily to check whether employees are nearing or exceeding their overtime threshold.
  • Tracking software can help employers manage employee schedules - and indicate which employees should be receiving overtime pay.

Educate Employees: 

Employees may not understand the difference between the 'exempt' and 'non-exempt' status, or may not be aware of their overtime eligibility...

  • Train non-exempt staff to observe scheduled work hours - a time management system may be particularly useful here.
  • Establish a procedure to approve overtime for employees who may need to work extra hours.
  • Employ HR staff to advise employees on their overtime rights and benefits, e.g, whether to include travel or training sessions as part of an 'hours worked' calculation.

Shift Employee Classification: 

An employee's 'exempt' or 'non-exempt' classification determines their overtime eligibility. Shifting that classification may be advantageous...

  • If you are unsure over an employee's FLSA classification, it may be worth reclassifying them as 'non-exempt' to reduce compliance risk.
  • Alternatively, it may be beneficial to raise an employee's salary above the FLSA threshold - qualifying them as exempt.
  • Since shifting classification involves adjusting salaries - it's important to ensure the process is transparent and fair in order to maintain wider employee satisfaction.