Implementing the FLSA Overtime Changes

Introduction

On May 18, 2016, the Department of Labor announced new overtime rules that affect millions of American workers. The new rules double the minimum salary requirement to $913 a week ($47,476 a year) for certain employees to qualify as exempt — or not entitled to overtime pay.

$23,660/yr CURRENT MINIMUM EXEMPT SALARY > $47,476/yr NEW MINIMUM EXEMPT SALARY

4.2 million WORKERS AFFECTED

4 Key Areas to Focus on Now

In this guide, we’ll focus on best practices to implement and communicate these changes in your organization.

  1. Reviewing company policies and practices
  2. Internal communication
  3. Employee training and compliance
  4. Revising company budgets and processes

STEP 1 – REVISING COMPANY POLICIES AND PRACTICES

The new overtime rules may mean many of your organization’s employees will need to be reclassified, so we recommend first reviewing your current policies and procedures.

This is especially important if your organization doesn’t currently have many nonexempt employees. If so, you may not have policies that deal with timekeeping and work hours.

If these policies and practices aren’t currently covered in your employee handbook, we recommend adding them now, or distributing them separately as handbook amendments.

Once distributed, employees should sign-off to acknowledge their understanding and acceptance of the new policies.

THE WAGE AND HOUR GOLDEN RULE – Non-exempt employees must be paid for all time they are “suffered or permitted” to work. This doesn’t just mean time in the office, but all time, whether approved by the employer or not.

Changing the habits of your formerly exempt employees with regards to timekeeping is critical to prevent a wage and hour violation.

These employees are likely used to working after hours – responding to work email, finishing up projects, or engaging in other work tasks. While intentionally working off-the-clock may not be your employees’ goal, you want to be sure that your policies are clear around off-the-clock work and the company’s commitment to recording all time worked by non-exempt employees.

KEY POLICIES TO REVISIT

  • Timekeeping
  • Off-the-Clock Work (like checking email after hours)
  • Bring Your Own Device (e.g., personal cell phone)
  • Meals and Rest Periods
  • State and Local Overtime
  • Travel Time
  • Payroll Changes

TIMEKEEPING

Be sure to train your previously exempt employees who may not be familiar with your timekeeping procedures, e.g., tracking time, clocking in and out, compensating for off-duty work, turning in time sheets, etc.

OFF-THE-CLOCK WORK

All hours worked by a non-exempt employee must be recorded and compensated, even those worked outside of the employee’s standard shift. Therefore, it’s critical to have a policy in place that informs employees that all time worked must be tracked, and that off-theclock work is prohibited by the company. In other words, employees must follow their written work schedule and may be disciplined for not doing so. Refusing to pay for unauthorized time worked — whether it’s regular or overtime — is not an option.

BRING YOUR OWN DEVICES

If a non-exempt employee checks their work email on their personal device (e.g. smart phone, tablet, or home computer), time spent working on this device is considered time worked, and should be tracked and paid accordingly.

For this reason, many employers don’t allow non-exempt employees to use their personal devices for work purposes, or only allow such use with management approval. Additionally, a good Bring Your Own Device policy will require that employees accessing company information from their device have security measures in place to protect the company’s confidential information.

MEALS AND REST PERIODS

Many states require meal and/ or break periods for non-exempt employees, which vary depending on the length of their shift, and many companies choose to provide meal and break periods voluntarily. It’s important to inform employees of these breaks and your timekeeping procedures, and to notify them that no work should be performed during such breaks.

STATE AND LOCAL OVERTIME POLICIES

Now is the time to ensure that you’re familiar with your state and local overtime laws.

Although most employers will only be subject to the federal requirement to pay time and a half for hours worked over 40 in one workweek, Alaska, California, Colorado, and Nevada each have daily overtime provisions, and Massachusetts and Rhode Island require some employers to pay a premium for work on Sundays. It’s important that employees and managers alike are aware of the rules for compliance.

TRAVEL TIME

Since non-exempt employees must be paid for all time worked, travel time for those who regularly travel for work may require further consideration.

There are a few narrow exceptions when travel time isn’t payable (e.g., when the employee is a passenger in a vehicle or during a standard morning/evening commute), but it’s a good practice to assess an employee’s travel schedule to ensure proper pay.

PAYROLL CHANGES

INCENTIVE PAY

Payroll changes are especially relevant as they relate to issuing incentive pay (non-discretionary bonuses, commissions or any other non-hourly pay) to non-exempt employees. Per FLSA requirements, overtime must be calculated weekly based on the employee’s “regular rate of pay”. However, incentive pay must be included in the employee’s “regular rate of pay” calculation.

For weeks in which a non-exempt employee earns both overtime and incentive pay – whether provided at the time or retroactively – the company must calculate (or recalculate) the employee’s regular rate of pay so that it includes both their base pay and incentive pay for the week, then utilize the new amount for overtime calculations.

WORKWEEK

While not a change, it’s important that the individual responsible for payroll, along with managers and employees, are well-aware of the company’s 7-day workweek. Every company must have an established workweek that is not adjusted or altered to avoid overtime. Each workweek is assessed individually for overtime calculations, and overtime must be paid for each workweek in which it is earned.

COMP TIME – Arrangements where an employee receives amounts of time off (also known as compensatory or “comp time”) in place of overtime wages are not permitted for non-exempt employees of private employers.


STEP 2 – INTERNAL COMMUNICATION

Since the new overtime rules may mean some significant changes for your employees, it’s important that all new or updated policies are communicated clearly. Here are some things to consider:

WHO WILL COMMUNICATE THE CHANGES?

Think about the size and structure of your organization, and who is most capable of getting the message to employees in an efficient and positive manner. Consider managers, the executive team, and your HR professional.

WHO DO YOU NEED TO NOTIFY?

Decide if you will only discuss changes with newly non-exempt employees or if a company-wide notification makes most sense. If numerous work schedules will need to be rearranged, if employees who used to answer multiple internal questions on weekends will no longer be able to, or if the lunch room is going to be much busier, then consider extending your notification to all employees.

WHAT SHOULD BE COMMUNICATED?

  • A high-level overview of the FLSA changes
  • The decision-making process for FLSA classification
  • New classification as non-exempt
  • Changes to compensation structure beyond classification as nonexempt
  • Company policies and procedures for non-exempt employees

SAMPLE RECLASSIFICATION LETTER Use the sample letter at the end of this booklet as a starting point to communicate the FLSA changes to your employees.

WHAT ABOUT THE TIMING?

Some states have requirements for advance notice of any changes to pay. Others require issuing written notice of the change. For those states that don’t have requirements, we recommend at least one pay period advanced notice of any changes to pay, but for a change in classification, two or more pay periods’ advanced notice is best.

WHAT SHOULD BE DOCUMENTED?

Absent state documentation requirements, we recommend clearly documenting these changes for the employee’s personnel file.

All details for the classification change should be documented, including:

  • New FLSA classification as non-exempt
  • Type of pay received (e.g., hourly, salary, piece rate)
  • The effective date of the change

This document should be signed by the employee, their manager, and the human resources representative, and then stored in the employee’s personnel file. Updated policies should be distributed and acknowledged by each employee, and the acknowledgment form should be maintained in their personnel file.


STEP 3 – CONDUCT TRAINING

Set aside time to train your supervisors and managers to ensure that new and updated company policies and practices are accurately communicated, understood, followed, and enforced.

Additionally, managers and supervisors must understand the company’s overtime practices and the budget implications of reclassifying employees. For example, if overtime should be avoided entirely, managers may need to adjust their scheduling to accommodate for this.

Managers also may need to examine their staffing models to ensure adequate staffing for service or product output.

Employees must be trained so that they are aware of each policy and how it affects them and their work each day. They must also understand that once they are trained and acknowledge the policies, failure to comply can result in discipline.

Both managers and employees must be aware of what constitutes compensable time, as this change may be a sizable adjustment.

For example, travel time and time spent checking emails at night must be compensated. Employees will need to know how to report this time and managers will need to know how to schedule accordingly.

When training employees on the relevant policies and practices, it may be worth a few minutes of your time to discuss that the driving force behind these changes is the FLSA, not your opinion of the reclassified employees.

For better or worse, being exempt (or salaried) has been a status symbol in the American workplace. It’s important to communicate that this change isn’t due to the employee’s performance, dedication to the company, or contribution – it’s simply a result of changes to federal law that the company must comply with.

THE BENEFITS OF PROACTIVE TRAINING Time, energy, and money dedicated to training will be well-spent. Proactive training on compliance – prior to the rule’s effective date and in the following six months to a year – will cost a small fraction of the price of defending wage and hour claims.


 STEP 4 – REVISING COMPANY BUDGETS AND PROCESSES

Since the final rules have been issued, you should be able to analyze company budgets to determine the impact (assuming you’ve done the legwork to determine how many hours your currently exempt employees are working*).

Depending on the scale of the changes your organization needs to make, continuous monitoring of budgets may be necessary for the first six months to a year.

You may also want to consider planning ahead and assessing future budgets. Keep in mind that part of the DOL’s rule change is a mandatory increase to the minimum salary threshold every 3 years. The next increase, effective Jan. 1, 2020, is currently estimated to be just over $51,000.

This means that every 3 years employers will need to go through the same process of identifying exempt employees that don’t meet the pay criteria, assessing pay options, and reclassifying if needed.

*NEED HELP ON FIGURING OUT HOURLY WAGES FOR YOUR CURRENT EXEMPT EMPLOYEES? Visit or subscribe to the HR Support Center to check out our FLSA Overtime Changes Planning Booklet for detailed information and tools, including how to calculate rate of hourly pay for your employees who are currently exempt.


Additional Resources

Download this booklet to receive the following tools you can use to communicate some of the FLSA changes to your employees:

  • Fact Sheet
  • Sample FLSA Reclassification letter to employees
  • Time tracking memo to employees
  • FAQ