The U.S. Department of Labor is expected to announce overtime rules addressing regulations that will significantly affect labor costs. The overtime protections will be extended to nearly 5 million white collar workers within the first year of implementation. With only 60 days to comply, employers will be expected to increase the salary level for “white collar” exemptions from the current minimum of $455 per week, or $23,660 a year, to $970 per week, or $50,440 annually. As a result, employees paid below the $50,440 threshold would be entitled to overtime on any work over 40 hours per week.
The proposed overtime rule is still waiting on approval from the OMB, but organizations should not wait to start preparing for the changes. There are serious consequences for non-compliance. NERA Economic Consulting reported that the average settlement payment could cost companies around $6.9 million.
What should organizations do to prepare for the FLSA changes?
Understand Federal and State Requirements
Individual states will enact slightly different wage and hour statutes or regulations that differ slightly from the Federal regulations. Understanding the expectations in your state is crucial to compliance. The proposed rule favors whichever requirements are more generous towards employees. The State Department of Labor website will have details about the specific requirements.
Update Salary Classification for Employees
Salary classification is the best method for knowing or gaging the potential impact to labor costs. The new FLSA regulations will affect any employee who makes between $23,600 and $50,440 per year. New groups of employees will become eligible for paid overtime; the salary threshold for exemption will rise from $455 per week (or $23,660 a year) to around $970 a week (or $50,440 a year). Once you identify the employees who will be affected through payroll or manual systems, there are a couple key details to consider.
Hours Worked: Do you typically require these employees to work more than 40 hours a week? Are you able to report on their historical hours to understand the potential cost and impact?
Cost: If you know that these employees are scheduled for over 40 hours a week, do you have a defined strategy to ensure overtime compliance? Are you willing to pay them overtime? What is the ongoing overtime rate? Is the more logical answer to reduce hours or hire additional workers to cover the overage?
Track Employee hours and Monitor Overtime
Proper implementation or use of your Kronos application can ensure correct tracking of employee hours, allowing HR to identify the exact number of hours worked by employees so no overtime is overlooked. Once hours are being properly tracked, HR should take time to analyze any fluctuations in the amount of hours worked and consider if there is a more cost-effective strategy.
As new employees become potentially eligible for overtime pay, effective scheduling, labor tracking and time tracking are more important than ever. organizations that automate leave and absence management had 33 percent less unplanned overtime, according to a January 2015 report by the Aberdeen Group® titled “Productivity: Managing and Measuring a Workforce.
Here are FLSA best practices to consider:
Consider the use of time collection devices for salaried employees.
Consider greater integration between your HR, Payroll and Timekeeper software solutions.
Consider the use of an integrated scheduling software such as Kronos Workforce Scheduler already utilizes time clocks, time stamp or Kronos Mobile options, expanding their use to salaried employees can provide greater transparency for worked time.
This will provide managers with access to worked hours, earnings, overtime and job description information so that they can proactively manage for compliance. This will also simplify reporting and record keeping to meet FLSA requirements. (WFS); the solution to controlling FLSA-mandated overtime for newly eligible employees is developing accurate schedules that meet projected resource needs and allow managers to predict when overtime will be required.