The new regulations regarding the Fair Labor Standards Act (FLSA) exempt status have businesses unsure how to classify many of their employees. The dilemma includes determining whether an employee falls under the exempt status, what action to take if they don’t, and how to avoid causing internal strife with other employees.
Understanding the Details and Options
The first step is to become very familiar with the new ruling taking effect on December 1, 2016, (that may seem like a short timeline to comply, but legally, the FLSA was only required to give a 60-day timeline for compliance). Details of the ruling include:
- Determination if a position passes the appropriate exemption criteria, which can fall under the categories of administrative, professional, executive, sales, etc. It’s important to review the ruling for each particular situation, located on the U.S. Department of Labor website. One important feature includes ensuring the employee is compensated on a salaried basis, not per hour, so compensation doesn’t fluctuate based on quality or quantity of work. Decision-making ability, specialized knowledge, and particular tasks are also taken into account.
- Ensuring an employee meets the minimum compensation required for exempt status, which was raised to $913 per week; $47,476 annually.
- The new salary feature will be re-evaluated automatically every three years and adjusted as appropriate.
It’s important to review all roles within a company to determine if they fall into the exempt or non-exempt category. If a non-exempt status better fits a position, there are a few options available, such as:
- Raise a salary to the minimum requirement for an exempt employee and maintain exempt designation, as long as the other requirements are met.
- Reclassify a position to non-exempt, making it eligible for overtime pay.
- Designate an employee as salaried, non-exempt. This includes compensating the employee with a consistent salary instead of an hourly rate based on actual hours worked. If taking this route, it’s important to track time and ensure any hours over 40 per workweek are documented and compensated as overtime pay.
Considering All Aspects
The best approach depends on each particular position—even each particular employee. Some factors to take into consideration include:
Current compensation. If an employee’s compensation falls within a close range of the minimum requirement, the best option may be to meet the cut off amount—particularly if they tend to work over forty hours per week. The extra compensation may actually be a cost-savings measure that would avoid overtime pay. When considering this option, make sure to take into account “hidden overtime,” such as travel, training, or waiting times.
Tenure with company. If an employee just started with a company, an immediate raise might not be a good option. Or alternately, if someone has been a long-term member of the team, increasing compensation to the minimum might be closely in line with their performance evaluation timeline.
Job description, tasks, and experience. Look closely at different aspects of the job description and make sure it accurately reflects the employee’s daily role within a company. Research whether they have any supervisory duties, the extent of decision-making abilities, and the depth of KSA’s brought to the table. If necessary, certain exempt tasks may have to be adjusted and linked to another role.
Situations within a company. Unscheduled changes in pay or job assignments may impact the organization and its employees negatively so it’s important to take into account employee morale, current policies, and organizational climate when determining the best approach to fulfill the new requirements.
Compensation review. A comprehensive compensation review that takes into account all salaries throughout the organization, (even those not directly affected by the new ruling), will help to ensure internal equitability and avoid any discrimination accusations based on minority or gender.
Legal Requirements. It’s always a good idea to seek a legal review to ensure compliance when maneuvering though the new regulations and any classification changes. Since serious financial consequences can result from violations, a legal review can help avoid these situations.
Regardless of the action decided upon, the best approach is to couple it with solid employee communications. No doubt employees have heard about the new requirements through extensive media coverage, or even office buzz, so it’s important to provide an open communication environment for people to understand the ruling, ask questions, and voice their concerns or ideas as necessary. This will help to avoid future internal employee relations issues.
With so much to take into account and act upon, it’s understandable for companies to get thrown into a tailspin over trying to comply with new regulations and keeping employees happy at the same time.
Moynihan HR Consulting can assist your company in navigating these new rulings by answering your questions or assisting you in evaluating the most appropriate method for your organization to address these new legal changes. We can also help facilitate any new administrative changes resulting from the new ruling, such as updating policies and procedures, tracking hourly wages, processing payroll, changing benefits, and training employees to comply with new processes.
About Moynihan Counsulting
At Moynihan Consulting, we have a proven track record of building Human Resource infrastructure and processes. These include organizational development, recruiting and hiring, compensation, benefits, employee engagement, and performance management. We can operate as your full-scale Human Resource Partner or we can work on a project or case-by-case basis. Whatever your needs, we are here to assist you.