The New #FLSA Overtime Changes: Make Sure Company Policies Are Aligned

Sharlyn Lauby

19 Jul 2016

(Editor’s Note: Today’s post is brought to us by Paycom, a leading provider of comprehensive, cloud-based human capital management software. Paycom was recently recognized as one of the “50 Most Engaged Workplaces” by Achievers. Congrats on the company’s recognition and enjoy the post!)

A couple of months ago, the much-awaited final ruling came from the U.S. Department of Labor with changes to the overtime provision of the Fair Labor Standards Act (FLSA). In case you missed it, here’s a short summary of the ruling:

The Department of Labor has set the new standard salary level at $913 per week or $47,476 annually.
Employers will be allowed to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new salary threshold.
A mechanism for automatically updating threshold levels every three years has been established.
These changes go into effect on Dec. 1, 2016.

As a result, organizations are focused on understanding which employees are affected by the change and what actions the company should take, if any, as a result. Many companies are looking at the possibility of adjusting employees’ status and pay, which is totally understandable. They’re also having internal discussions about how to manage overtime pay and payroll expenses.

Before we go any further, I know you guys know this but please remember that we can’t possibly cover every contingency in this post. The information we’re covering is for general informational purposes only and does not constitute legal advice, tax advice, accounting services, or professional consulting of any kind. It’s always a good idea to discuss specific detailed situations related to this matter with your friendly professional tax, accounting, legal or other professional services consultant.

Exploring the Overtime Policy Piece

Whenever a change in the law could affect how employees are paid and classified, we have to look at how it impacts the two most important pieces of our organizational culture: people and policy.

In this case, I think there’s been a lot of coverage about dealing with the people aspect of the change and less about the policy piece. I was reminded of this during a Paycom webinar on “FLSA: Don’t Underestimate Overtime Expansion.” In case you missed it, there is an archived recording of the webinar available and it has been preapproved for recertification credit by the Human Resource Certification Institute.

So how should HR pros approach policy changes before the ruling goes into effect? Auditing your policies surrounding the issue at hand – overtime – could be a good start. Do the existing policies cover which employees can and cannot work overtime? Do your current policies consider work done on mobile devices as hours worked or travel time? I spoke with Paycom Chief Operating Officer Stacey Pezold and she shared with me that today’s companies have more to consider as it relates to how regulations impact operations.

“It’s crucial that organizations make regular assessments of what their overall operational needs are, especially when new legislation occurs,” Pezold said. “In doing this, businesses are in a better position to help support the organization from an operational standpoint.”

After you conduct your policy audit, be sure to make the necessary changes, review for organizational consistency and communicate. Pezold recommended finding partners that understand your business to help with the change. “There is a high level of expertise around human resources and human capital management, but it really is imperative that organizations partner with a technology provider to better support them, their business and their staff,” she said.

Additional Policy Considerations

When it comes to restructuring your workforce in order to mitigate increased labor costs under the new rule, several options are available. In the context of workforce restructuring, it is important to be mindful of other legislation. While your organization is putting its plans in place to address the new FLSA changes, here are a few other laws to keep in mind.

Affordable Care Act (ACA) – Changing an employee’s status could impact the tracking/reporting requirement under ACA. For example, making changes to an employee’s classification to avoid an increase in labor costs may trigger changes to that employee’s opportunity to enroll in employer-sponsored health coverage.
Consolidated Omnibus Budget Reconciliation Act (COBRA) – Speaking of changing an employee’s status, the new rule could impact COBRA election notices and the timing in which they are transmitted to employees who could become ineligible for employer-sponsored benefits if transitioned from exempt to nonexempt. Organizations will need to understand what triggers a qualifying event and when an employee becomes eligible.
Other laws and policies – I’m going to lump these in the same category because they are unique to your state and organizational benefits: unemployment insurance, retirement plan contributions, group life insurance premiums and disability benefits. The benefit received by the employee is based upon hours worked or pay history, or both.

You get the point. In addition to taking care of our employees and the changes they’re facing, human resources professionals have to understand and work to mitigate the impact the new overtime rule has on their organization, from both an operational and policy standpoint.

If your organization is looking for resources to help with the upcoming changes to the FLSA, Paycom has an overtime toolkit, a white paper titled “FLSA Overtime Expansion Guide,” to help get you started. Also, stay in touch with Paycom by subscribing to their blog, following the company on Twitter or connecting on LinkedIn.