Since the U.S. Department of Labor finalized changes to the Fair Labor Standards Act (FLSA) overtime rules in May, I’ve been travelling across the country providing educational seminars to business owners, and HR and finance leaders on the looming changes.
So, what will the President Trump administration mean for Fair Labor Standards Act changes? While President-elect Trump pledged to support a pro-employer agenda, it might be politically difficult to repeal or change the FLSA overtime increases. These measures are generally popular with employees who stand to receive a pay increase effective on December 1, 2016, and it would be difficult for employers to revoke increases granted before President-elect Trump takes office. So, employers should take predictions of dramatic changes in policy with a grain of salt, because we don’t know what is going to happen. For the time being, therefore, the best advice that we can give to employers is to “stay the course,” keep preparing for the new FLSA exemption rules set to take effect on December 1, and be prepared for further changes in the future.
At this point in the game, most companies I’ve met with understand that the salary threshold for exempt workers has more than doubled to $47,476, and they’ve decided whether to reclassify employees as nonexempt, increase salaries of impacted employees, or redistribute work and redefine people’s roles.
The biggest challenge remaining: Communicating the changes to employees before the new regulations take effect on December 1. To ensure your company has all of its i’s dotted and t’s crossed, be sure to consider the following key areas that may be easy to overlook:
1. Fine-tuned employee communications and training. Once your business strategy is approved, review and edit your wage and hour policies and then decide how you’ll communicate changes to employees. It’s important to make clear to associates that it’s the law that’s necessitating the changes, not the company, and that there are financial repercussions for noncompliance. Companies then need to decide who’s going to deliver the message, what they will communicate, and how will they do it. Most important, they then need to train reclassified employees and their managers.
Employees being reclassified should be trained on new policies and how to track their time. Also, employees who received a pay raise to meet the new salary threshold this year should also be made aware that it doesn’t mean they’ll automatically get another pay increase when the threshold is reexamined in three years.
2. Beyond the salary level test. One of the biggest misperceptions about the new rules is this: Many employers think they only need to focus on the changes to the salary level test to be in compliance. The reality is they can also get into trouble if they’re not complying with the duties tests under the Fair Labor Standards Act. For many companies, the last time they updated job descriptions was when the law changed in 2004. What they need to consider is that after the recession in 2008, many people were laid off and other employees picked up their work without notifying HR of any duty changes. Some of these people could now be doing nonexempt work, but are considered exempt due to their outdated job descriptions. These employees may need to be reclassified, so HR leaders should take this opportunity to figure out whether job descriptions are accurate, and then consult with a legal expert if they feel any back wages are owed.
3. Rules around nondiscretionary bonuses and commissions. Under the new rules, employers are allowed to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level. These payments must be made at least quarterly to count toward the salary threshold. What can be tricky is when you have an employee where 90 percent of the employee’s compensation comes from base pay and 10 percent from a bonus based on performance. If the employee doesn’t do a good job and only receives $500 of their $2,000-a-quarter bonus potential, the company would still have to pay that person the difference if they want the employee to remain exempt. If the threshold is not met in any quarter, the employer must make up the difference by paying the employee a “catch-up” payment in the first pay period after the end of the quarter to maintain the employee’s exempt status; if they don’t make up the difference, the employee is deemed to be non-exempt and overtime pay may be due.
4. Changes in flexibility. Companies need to discuss the loss of flexibility of hours to reclassified employees and ensure they clearly explain that working off the clock (meal and rest breaks, travel to client meetings, responding to email in the evening) is all work time and payable if they are nonexempt. When it comes to mobile device usage, companies may need to decide if nonexempt employees will continue to be allowed to use mobile devices outside of work hours. Companies also need to consider PTO accrual and usage for exempt versus nonexempt employees, which often varies by company. Many nonexempt employees who are reclassified will now have to account for time that they didn’t need to worry about before, such as taking a few hours during the day for a doctor’s appointment.
5. Pay and benefits considerations. Often nonexempt employees are paid weekly and exempt bi-weekly. Be sure to communicate any change in pay frequency to the impacted employees. Also, sometimes only exempt employees are eligible for ancillary benefits like life insurance and disability. For employees who are reclassified but were eligible for these benefits before, companies need to ensure they don’t encourage them to sign up for these benefits during open enrollment only to be told later they are not eligible once the law changes December 1.
6. Morale and productivity pitfalls. When employees are reclassified and have to abide by new policies, employers need to consider how that will impact both employee morale and productivity. For example, if a mobile device is taken away from a newly classified nonexempt employee, will it impact productivity and will the employee feel less valued? Will the employee feel frustrated that he or she used to do work at home and now both the employee and his or her manager have to keep tabs on work hours? I spoke to one research firm that has many employees impacted who are recent college graduates. These employees correlate time with outcomes and work long hours to get results. Therefore, the company had to carefully position the message to employees so they don’t feel their work would be impacted and to ensure managers won’t have to chase them out of the office to avoid paying overtime.
Remember this: Whatever your company decides to do will have visibility on social media. You’ll want to make sure that employees feel positive about the change, so they don’t take to social media to complain to hundreds of friends. While communicating big changes can be scary, HR leaders should view this as a positive opportunity to take steps to help ensure that their employees are classified correctly and that the company is not violating wage and hour laws.
Sushma Tripathi is Vice President, Workforce Planning and Benefits Consulting at ADP.
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