Talent Management

5 ways to prepare for the new overtime regulations

It’s time for an overtime audit. Is your business prepared?

It has been more than 10 years since the U.S. Department of Labor last updated the Fair Labor Standards Act overtime regulations.  The impending change is a big one.  The new rule sets the salary threshold for exempt employees at $913 per week or $47,476 annually.  Of course, the federal government never makes things simple and employers will still have to meet the duties tests requirements to ensure an exemption applies.

The Vistage CEO Confidence Index issued third quarter shows that 47% of CEOs say the new overtime pay rules that go into effect December 1st will impact their employees.  The number of businesses and employees actually impacted may even be higher since most CEOs are focused on their business, not the ever-changing landscape of regulations.

Employers will be required to pay the majority of workers who make less than $913 per week or $47,476 annually overtime for all hours over 40 worked in a week.  This salary threshold will continue to rise every three years and is expected to exceed $50,000 by January 2020.

Millions of employees will be affected by the new rule and unprepared employers could face substantial liabilities.  Failing to comply with overtime regulations exposes business to double damage penalties and mandatory attorneys’ fees.

What are the top 5 things your business should be doing to prepare?

  1. Audit your business’s payroll records and identify which employees may be affected by the new rule.
  • The first step is simple; review your payroll records and figure out how many employees are paid less than the weekly or annual threshold. Decide whether to apply raises or a time-tracking systems for employees close to the threshold.
  1. Review all job descriptions and duties to determine whether your business currently has any misclassified employees.
  • Even employees who make more than $47,476 annually might actually be non-exempt. This is your company’s opportunity to correct any employee classification issues before liability compounds.
  1. Implement a timekeeping system for all non-exempt employees and consider requiring that all employees track time (certain states already have across the board time keeping requirements).
  • Technology has simplified this task, but choosing the right technology is still a time consuming effort. Make sure you allot an appropriate amount of time for testing and implementation.
  1. Update employee handbook or policies with an overtime policy that manages costs and reduces liability.
  • Your business has to pay overtime pay to any non-exempt employee who works more than 40 hours in a week. However, you can limit the financial risk by implementing a policy that requires supervisor approval before working any overtime hours.  Make sure you choose a policy that appropriately assesses financial considerations and employee workload.
  1. Develop a roll-out plan that is consistent with your company culture.
  • In taking the above steps, it is important to be mindful about not only how the new rule may affect your business, but how it may affect employees’ perception of their roles within your organization. Many employees may be disgruntled with the prospect of “clocking in and out.”  Keep in mind that how you communicate the organizational changes is just as critical as what you are communicating.

Like most regulatory changes, this one will likely be painful on the front-end for many businesses.  However, it could also end up being an opportunity to increase employee satisfaction and minimize risk. Many employers have been inadvertently violating the current FLSA overtime rules for years.  A thorough audit to address the new rule may also prevent a class or collective FLSA claims from being filed against your business.  It’s an indirect savings that can directly impact the sustainability of your business.

UPDATE: Read here for recent developments regarding the new overtime regulations.

Related reading — outside factors impacting your business:

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About the Author: Kristen Prinz

Kristen Prinz is the Managing Principal of The Prinz Law Firm, an employment law firm that provides employers and employees with strategic legal solutions to address all aspects of employment. These strategies assist business owners, entrepr…

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