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New DOL Overtime Ruling:Are you Ready?
Presented by: Teresa Foltz
Senior HR Consultant vcfo
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Situation
With the new FLSA rules going into effect on December 1, 2016, FLSA analysis and compensation planning is critical for all employers.
How will these rules impact your business?• Higher exempt salary thresholds impacting payroll budgets• HCE threshold will also increase• Will affect employee benefits• Will challenge recruiting strategies• Each state will be affected differently• Impact on employee morale; messaging is critical
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Discussion guide
• Define the FLSA ruling. • Who is affected?• Hardest hit industries• Current regulations vs. Final Rule comparison• Prepare and plan now • Risks Associated With Business Options• Understand how it will impact your business• Change in job descriptions, classifications and
exempt/non-exempt status• Communication with employees regarding their exempt
status• Plan Ahead and Lay Ground Work Now Road Map• vcfo can help: Diagnosis and scenarios to support post
December 1 plans
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Background
• March 2014 President Obama sent a directive to the Secretary of Labor to update the overtime regulations.
• By December 1, 2016, all companies will automatically be required to extend overtime pay eligibility to most salaried white color workers earning less than the new threshold of $913 per week ($47,476 a year).
Intent: provide a meaningful boost to workers, and solidify President Obama’s commitment to ensuring every worker is compensated fairly for their hard work.
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Who Is Affected?
• The new overtime rules will make approximately 4.2 million currently exempt employees eligible for overtime pay.
• All employers will have to comply with the changes made to the overtime regulations of the Fair Labor Standards Act (FLSA) by December 1. 2016.
• Millennials May Get the Short End of the Overtime Stick.• HR departments need to prepare now.• CFO needs to prepare for payroll budget increases.
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Hardest hit organizations
The new regulation will cost private employers $1.8 billion in the first year estimates the Labor Department. Most people impacted by this change will not see any additional pay, “instead, this sudden and extraordinary increase will mean more red tape and fewer advancement opportunities for salaried professionals.” (Lundgren, Anissa SHRM)
Most company’s exempt employees are already paid above the new threshold. As such, we don’t expect most companies to make many changes.
Hardest hit industries:
• Retail shops• Restaurants• Call Centers• Nonprofits• Small Businesses
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How do the current regulations and final rule compare?
Current Regulations Final Rule Date effective 2004 until effective date of Final
Rule, Dec. 1, 2016December 1, 2016
Salary Level $455 weekly $913 weekly (40th percentile of full-time salaried workers in the lowest-wage Census region (currently the South)
HCE (Highly Compensated) $100,000 annually $134,004 (90th percentile of full-time salaried workers nationally)
Automatic Adjusting None Adjusted every 3 years, maintaining the standard salary level at the 40th percentile of full-time salaried workers in the lowest-wage Census region, and the HCE total annual compensation level at the 90th percentile of full-time salaried workers nationally
Bonuses No provision to count nondiscretionary bonuses and commissions toward the standard salary level
Up to 10% of standard salary level can come from non-discretionary bonuses, incentive payments, and commission, paid at least quarterly
Standard Duties Test Refers to your job descriptions and essential job functions which determines duties and where your employees fall.
No changes to the standard duties test.
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Ways To PrepareAfter comparing how workforces will be impacted by the final ruling,
employers have three basic options for adjusting their compensation practices according to the DOL:
• Increase employees salaries to above $47,476 to keep them exempt from overtime;• Reclassify positions that pay between $23,660 and $47,476 from exempt to nonexempt, and pay
employees in those positions overtime when they work more than 40 hours a week;• Restructure the workforce or particular jobs. This might include removing some duties from a group
of employees so that they can complete their work in 40 hours a week and transferring those duties to another group who have had their salaries increase to remain exempt.
Additional Options: • Pay an onetime premium of one and half times the employee's regular rate of pay for any overtime
hours worked;• Reduce or eliminate overtime hours;• Reduce the amount of pay allocated to base salary (provided that the employee still earns at least 40
applicable hourly minimum wage) and add pay to account for over time for hours worked over 40 in the workweek, to hold total weekly pay constant;
• Use some combination of the above
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Risks Associated With the Business Options
• Option: Convert affected employees from salary to hourly schedules and limit their work hours to 40.
Risks: How to message, morale, employee believes demoted to non-exempt status.
• Option: Pay overtime premium for overtime hours worked to exempt employees.Risks: Increases costs, could create liability for employer if it
fails to track, record and report all hours worked could damage morale as previously exempt positions may carry less flexibility and offer fewer benefits.
• Option: Increase salaried amounts to the new minimum of $47,476 per year to avoid additional overtime costs.
Risks: Salary compression and result in higher-then expected costs as compensation must be realigned up the ladder. Potential for discrimination claims, etc.
• Option: Reduce or eliminate overtime hours; hire extra workers as needed (administration suggestion this is one of the reasons for the new rule)
Risks: Could lead to loss of productivity, may require training for supervisors of newly non-exempt workers, could damage morale as previously exempt positions may carry less responsibility and flexibility and offer fewer benefits, could create liability if employer bans overtime hours but employees work them anyway
(employer would have to pay anyway)
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Job descriptions and ClassificationsThis is a good opportunity to audit the company’s job classifications to see if there are any jobs that need to be reclassified.
If you do have them in place:• Revisit them and be sure the essential job function reflects the correct classification; exempt or
non-exempt status.
If you don’t have them in place: • Highly recommend you develop them in order to be certain your classifications are correct.
The last thing you want is an DOL audit of your JD’s: • Key features of a well written job description essential job functions focus on; job-related duties,
demonstrates level of decision making, supervision, etc.
Last thing you want is an audit by any of the following government agencies; EEOC, FLSA, OSHA, DOL, etc. They tell all of their buddies.
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Salary Compression Risk
Adjusting pay can create salary compression. This is a great opportunity to revisit:
• Compensation philosophy.• Analyze salary structure and conduct a salary compensation survey
to market.• Identify any risk associated with same level employees being paid to
high or to low and adjust accordingly.
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Communication with your employees
Telling workers who have never punched a time clock that they will lose their exempt status will not be easy. Here are some suggestions on how to message the change:
• Tell employee will now be paid time-and-a-half for after-hours work. At organizations that limit overtime, employees may be happy that they don’t have to put in more than 40 hours a week.
• Address any concerns they may have about being able to get their work done. Managers will have to work with employees who will not be able to stay late due to “no overtime rules imposed” and will have to come up with creative ways to get work done; if an employee has to stay late one night, they should be able to leave the next day early or company will have to pay OT.
• Do not wait until the last minute to talk with your employees. • Honesty is recommended. Lay it out for them. Explain the new ruling so
they will understand. It is far better for them to hear it from you then to learn on their own and feel like you have attempted to pull the wool over their eyes.
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Plan Ahead and Lay Ground Work Now • Identify: Look at all of your exempt employees who earn less the new
annual threshold of $47,476.• Estimate: How much overtime those employees currently work.• Budget Analysis: Will help you determine your options.• Review: All job descriptions for all exempt positions to make sure duties will
pass the essential job function test set forth by the Department of Labor (DOL)
• Check: Make sure employees that are in the same roles aren’t classified differently. This could create discriminating claims.
• Develop: How you will communicate to those who will move from exempt to nonexempt status in order to minimize negative outcomes on organization morale.
• Think about: Putting restrictions on overtime and look at ways to track nonexempt workers hours.
• Be sure: To determine if changes are needed in other policies such as telecommuting, Mobil device usage to curtail overtime and working off-the-clock.
• (shrm)
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• What is the DOL?
• What is the FLSA?
• What is the threshold for exempt status pay?
• Who is affected?
• When does this new ruling go into affect?
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How can vcfo help you?
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How can vcfo HR Solutions help you?• We can assist with the diagnosis of the impact and help you develop
scenarios to support post December 1 plans.• Review and creation of job descriptions for a number of positions. This
includes:• A review of current data collected by the HR team.• Phone or in-person interviews with employees/supervisors.• A collection of specific job information and write ups of descriptions.• A position analysis to identify any titling or compensation issues across the organization.• Storage of job descriptions in designated network library for ongoing use.
• We can provide FLSA exempt vs. non-exempt position testing in various markets. This includes:• Reviewing updated job descriptions and compensation amounts for each person.• Identifying any positions which may be misclassified or may need a compensation adjustment
prior to 12/1/16.• Reviewing wage and hour policies and processes.• Communicating the changes to employees.• Training the reclassified employees and managers.• Providing a presentation to human resources and the executive team with a summary of FLSA
findings and -suggestions on next steps, if necessary.
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Q&A
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