If you aren’t already aware, the U.S. Department of Labor (DOL) has proposed revisions to the Fair Labor Standards Act (FLSA). These revisions are expected to be finalized within the next few weeks. Under current FLSA rules, employers are required to pay non-exempt employees 1 ½ times their regular pay rate for any hours worked in excess of 40 hours a week (overtime). Employers are not currently required to pay overtime to exempt employees. The most highly anticipated change to the Fair Labor Standards Act is an increase to the salary threshold for an employee to be considered exempt. The existing FLSA salary test requires an employee to be paid at least $455 per week ($23,660 per year) to be considered exempt from overtime. The revised pay threshold is speculated to be anywhere from $900 to $970 per week ($46,800 to $50,440 per year). At a minimum, employers that have exempt employees with salaries falling between the old threshold and the new threshold should:
- Determine the number of employees that will be affected by the FLSA revision
- Analyze the impact that the FLSA changes will have on payroll and benefits cost
- Update policies and procedures to account for the revision
Analyzing the impact that the FLSA revision will have on your business can be complicated. There are several factors that need to be taken into consideration. The good news is that once the impact has been determined, there are a number of technologies that employers can use to monitor and manage labor costs moving forward. It is likely that you are already using some of them. Below is a list of technologies that can be used independently or in conjunction to help employers manage their labor cost:
Although the U.S. Department of Labor requires employers to keep time records for non-exempt employees, there is no such requirement for exempt employees. The proposed FLSA changes may cause employers to track time for employees for which they hadn’t previously. Additionally, capturing exempt employees time electronically will provide employers with the information needed to analyze the impact of future changes in the FLSA; since the salary threshold is subject to an annual automatic increase (either by a fixed percentile of earnings or by tying the increase to a consumer price index).
As previously mentioned, the DOL mandates that non-exempt employees be paid 1 ½ times their regular pay rate for any hours worked in excess of 40 hours a week. In an effort to control payroll costs, I anticipate a number of employers incorporating an overtime approval process into their policies if one does not already exist. Overtime approval technologies route requests through a predefined approval process enabling management team members to authorize and acknowledge the anticipated overtime hours prior to the time being incurred. It is important to note that the DOL requires employers to pay overtime regardless of whether or not the time in question received prior approval. However, employers can use the information captured in overtime approval applications to identify the conditions causing overtime, take steps to address those conditions, and enforce adherence to company policy.
Business Activity Monitoring
In an effort to pro-actively manage overtime costs, employers may want to consider Business Activity Monitoring (BAM). Gartner defines BAM as “… the processes and technologies that enhance situation awareness and enable analysis of critical business performance indicators based on real-time data.” Practically speaking, BAM is the monitoring of a database or databases for changes or conditions that require attention. As an example, an employer could use BAM technology to add together hours submitted in a time entry solution with remaining hours scheduled in a scheduling system (or standard hours from an HR system if scheduling is not being used) on an employee by employee basis. The BAM software could then generate an email to the supervisor of the employees that are in jeopardy of incurring overtime so the issue can be addressed proactively.
It is important to note that salary alone does not dictate whether an employee is exempt from overtime. There are certain duties that the employee must perform as part of their job function to qualify as exempt. The DOL has issued Fact Sheet #17A outlining what constitutes an exempt employee.
For more information related to understanding the FLSA rule changes and how they may impact your business operations, please contact Schneider Downs or read the article written by Adam Goode on FLSA revisions.