What You Don’t Know (and Need to Know) About the New FLSA Overtime Rules
Category: Business Tax Planning
Posted: September 2016
The Fair Labor Standards Act (FLSA) just finalized recent updates to their “white collar” overtime exemptions, and you might be surprised by the final touches. Below are a handful of the revisions that were made to the act:
The salary threshold needed to qualify for exemption from overtime pay has been increased to $47,476 per year.
Businesses who employ workers with salaries under this threshold will need to evaluate these positions to determine the best course of action. This could mean:
Increasing the salary over the threshold to avoid paying overtime, OR
Designating the employee as an hourly worker and paying overtime for any hours over 40 during a week. This rule applies to all employers, regardless of size, and goes into effect on December 1, 2016.
We’ve also provided a quick overview of the current FLSA rules on the subject:
Most employees in the United States must be paid at the federal minimum wage of $7.25, or the minimum wage of the state, whichever is higher.
Michigan employers must pay a minimum wage of $8.50 for all hours worked.
Overtime pay at time and onehalf must be paid for all hours worked over 40 hours.
In order to be exempt from these rules, workers must be employed as executive, administrative, professional or outside sales employees.
Job titles do not determine exempt status: it is the job duties which control this.
For comprehensive information regarding job duties for the various exemptions, visit the Department of Labor website at www.dol.gov, and search for Fact Sheet #17A. (The fact sheet has not been updated for the increase in compensation levels from $455 per week to $913 per week under the final rule.)
Now, what can you do to prepare your business for this substantial change?
Review your employees who are likely to be affected
Identify the workers who you have currently classified as exempt, and review their compensation levels and duties.
Begin tracking your exempt employees’ time.
For employees earning below the $47,476 threshold, you must accurately track hours worked so that they are paid correctly. You may want to consider some alternate methods, such as time and attendance software.
Determine which employees will transition to nonexempt status.
You will need to decide whether to increase salary levels for employees who meet the job duties test in order to maintain exempt status, or move the employees to nonexempt status. Nonexempt employees must be compensated at no less than the minimum wage for the hours worked.
Develop a plan for employee costs.
Take a look at your historical overtime payments, and determine what is likely to happen under the new rule.
Should you consider hiring more staff to reduce your overtime payments, or review your compensation methods for certain employees?
Develop training procedures for your staff.
Employers will need to educate employees on the timekeeping and overtime policies of the company, and if new software is part of the picture, training will be needed for proper use of it.
Clearly communicate changes to your employees.
Taking a clear and open approach to the subject ensures your employees are on the same page as you, and understand where they fall under the FLSA.
For any questions regarding these new regulations and their implementation, contact our office at
616-784-4445 for assistance.