In a previously published blog, we discussed that by December 1, 2016, all businesses must comply with the changes made to the overtime regulations of the Fair Labor Standards Act (FLSA). According to the rules, an estimated 4.2 million currently exempt employees will now be eligible for overtime pay.
With just two months left to go until these changes automatically take affect, businesses and HR teams must not only understand the ruling and whom it affects, but they must also take action to ensure FLSA compliance.
FLSA’s Business Impacts
In 2014, President Obama directed the Department of Labor to update overtime regulations governing exemptions of executive, administrative and professional (EAP) employees. The ruling requires all companies to extend overtime pay exempt employees earning less than the new threshold of $913 (up from $455) per week ($47,476 a year). In addition to raising the standard salary level, the ruling also increases the highly compensated employee total compensation requirement from $100,000 to $134,004 per year.
The Labor Department estimates that the new regulation will cost private employers $1.8 billion in the first year, with the hardest hit industries being retail shops, nonprofits, restaurants, call centers and small businesses.
Impacts businesses will see due to the FLSA ruling include:
- Higher labor expenses
- Necessary changes to employee benefits
- Challenges to recruiting and retaining employees
- Issues or confusion with employee classifications
What Businesses Should Do to Ensure FLSA Compliance
The new regulations require businesses to not only comply with the financial aspects of the increased pay thresholds and overtime pay, but they also need to be able to communicate the changes to employees. Both executive leadership and HR must be in sync to ensure a smooth transition.
To address these issues, businesses are implementing tactics such as:
- Converting salaried employees to hourly, and limiting them to a maximum of 40-hour weeks.
- Reducing base pay to account for the increase in overtime costs.
- Reducing headcount or raising prices to offset increased labor costs.
However, whatever business decisions are made to minimize the financial or operational setbacks businesses may see due the FLSA, businesses must be in-tune with the human resources aspects of the ruling. This includes developing a communication plan to employees, assessment of current employees’ pay and responsibilities, creation of new job descriptions, reviewing wage and hour policies, and training reclassified employees and managers.
If your business could benefit from additional information on the business impacts of the FLSA or assistance in developing a strategy to minimize cost and legal concerns, please contact us for a free assessment from vcfo’s HR practices, which provides HR outsourcing solutions and interim HR consulting.