Overtime and FLSA Changes – Making sense of pending changes

Apr 1, 2019 | Blog

Unless you have been living under a rock there has been a LOT of activity from the US Department of Labor (DOL) concerning updating the Fair Labor Standards Act (FLSA). At its core, the FLSA was intended to ensure workers were fairly paid for overtime hours worked, and any changes can have a major impact on businesses and cost of wages.

Originally enacted during the administration of Franklin D. Roosevelt, when supplemented by other DOL regulations it covers a variety of workers’ rights including:

  • Minimum wage ($7.25 per hour currently, which can be overridden if state minimum wage is higher). If you are in Georgia the federal rate is higher.
  • Overtime eligibility (exempt vs. non-exempt). Using the complex and often vague formula of the FLSA certain employees can be determined to be “exempt” as white collar workers from overtime. There are big exemption rules around Executive, Administrative, Professional, Computer-related Professional, and Outside Sales. There is also a minimum salary threshold (currently $23,660) that is part of the testing for exemption eligibility.
  • Overtime calculation (i.e., what wage types are included in overtime calculations). Regular rate of pay includes both hourly pay plus most bonuses, shift differential, on-call pay, and commissions. Unless a type of earnings is specifically excluded it must be used to calculate overtime. (NOTE: this is also where a lot of employers get into trouble, as this also requires you to recalculate overtime paid if/when you pay a non-discretionary bonus).

What’s happening?

During the Obama administration, the DOL took a decidedly hard turn toward driving more employees from exempt to non-exempt (i.e., overtime eligible) status. As part of this effort, FLSA rules were proposed to increase the salary threshold to $47,476…in effect doubling the current rate). This created a lot of employer concerns (while most agreed an increase was needed this was viewed as far too high) and a federal judge stayed the implementation of the new threshold. The DOL appealed the decision to the 5th Circuit, which stayed the appeal pending further DOL rulemaking.

Under the Trump administration, the DOL has proposed a new federal overtime rule with a salary threshold of $35,308, effectively splitting the difference between the old rate and the Obama administration proposed rate. They have also recommended raising the highly compensated threshold to $147,414 (which qualifies for a reduced duties test for exemption) and clarified additional exclusions from the overtime formula to remove some of the “gotcha” items from overtime calculations, including:

  • Cost of providing wellness programs
  • Tuition Reimbursement
  • Cost of employer provided gym and fitness club memberships

The proposed rules have a lengthy process before they are adopted, and currently are in the 60 Day comment period. Once that period ends, it is expected there will be thousands of comments to review before the DOL drafts a final rule to be submitted to the Office of Management and Budget for final rule preparation and issuance.

It is expected the Trump administration will push to get this finalized as soon as possible, with most observers expecting final rules to be in effect in early 2020.

What should I do now?

As noted above, the rules are not final, so nothing has changed yet. Still, now is not the time to stick your head in the sand and hope things go away. The Trump administration proposal is viewed as a compromise position and is likely to be adopted. The only question is when it happens.

Assuming proposal is adopted, there are a number of things employers should be doing to prepare for the new rules (while not implementing anything just yet):

  1. Take the opportunity to review workers job duties and correct any exemption classification errors. This should also include identification of any potential impact from changes to the salary thresholds. Remember, just because you pay an employee a “salary” does not mean they are “exempt” from overtime.
  2. Review your overtime calculations with your payroll department or payroll provider. Make sure you know what is included and excluded currently and the impact of any needed changes. It is also a good time to review and make sure overtime is being paid for all eligible hours.
  3. Plan for the any costs associated with compliance for 2020 budgeting, including increases in non-exempt employees eligible for overtime or the cost of salary increases to raise exempt employees over the new salary threshold.

As the saying goes, “an ounce of prevention is worth a pound of cure”. Taking the time now to ensure you understand any risks in your organization and the cost/strategy for compliance you can be ahead of the curve making compliance a lot simpler when the rules are in effect.

Chris Thomas, SHRM-SCP is the Principal Consultant with The CTCS Group in Canton, GA. The CTCS Group is focused on providing Fortune 500 HR expertise at an affordable cost to help small businesses grow and thrive. You can request a free consultation at www.thectcsgroup.com.

Disclaimer: The information and recommendations provided in this document should not be considered legal advice and should not substitute for legal advice where the facts and circumstances warrant. Recommendations are provided based on good faith assessment and interpretation of the available legal and regulatory resources.

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