FLSA Compliance: What the new FLSA Rules Mean for Kronos Users

Compliance is a major challenge for almost every employer. The recent modifications to the Fair Labor Standards Act have caused many organizations to see a spike in compliance risks. FLSA suits hit a record high in 2014, with over 1.3 Billion in back wages recovered. Organizations in all verticals have experienced wage and hour suits of upwards of 20 million dollars.

The Department of Labor expects 5 million employees to potentially be impacted starting in 2016.

The proposed rule is designed to update the salary and compensation levels for white-collar workers to be exempt. Changes will include:

• Setting the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers ($921 per week, or $47,892 annually).

• Increasing the total annual compensation requirement needed to exempt highly compensated employees (HCEs) to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers ($122,148 annually).

• Establishing a mechanism for automatically updating the salary and compensation levels going forward to ensure that they will continue to provide a useful and effective test for exemptions.

The proposed standard salary level represents the most appropriate line between exempt and nonexempt employees because it minimizes the risk that employees legally entitled to overtime will be subject to misclassification based on their salaries alone.

So what do the new FLSA rules mean for you and your company?“Overtime protection will be extended to nearly 5 million white-collar workers. Failure to update the overtime regulations has left an exception to overtime eligibility originally meant for highly-compensated executive, administrative, and professional employees now applying to workers earning as little as $23,660 a year. For example, a convenience store manager, fast food assistant manager, or some office workers may be expected to work 50 or 60 hours a week or more, making less than the poverty level for a family of four, and not receive a dime of overtime pay. Today’s proposed regulation is a critical first step toward ensuring that hard-working Americans are compensated fairly and have a chance to get ahead.”

• New groups of employees will become eligible for paid overtime; the salary threshold for exemption will rise from $455 per week (or $23,660 a year) to around $970 a week (or $50,440 a year).

• Expect those exemption levels to change again in the future. The Department of Labor is also exploring proposals to automatically update the standard salary and the highly compensated employee thresholds. The last time these requirements were updated was 2004.

In this 2 part series we are going to dive into the details of compliance, including:

1. Who it will Affect

2. Best Practices for FLSA Compliance with Kronos

3. Who it will Affect

Employees:

The new FLSA regulations will affect any employee who makes between $23,600 and $50,440 per year. New groups of employees will become eligible for paid overtime; the salary threshold for exemption will rise from $455 per week (or $23,660 a year) to around $970 a week (or $50,440 a year). Once you identify the employees who will be affected through payroll or manual systems, there are a couple key details to consider.

Hours Worked: Do you typically require these employees to work more than 40 hours a week? Are you able to report on their historical hours to understand the potential cost and impact?

Cost: If you know that these employees are scheduled for over 40 hours a week, do you have a defined strategy to ensure overtime compliance? Are you willing to pay them overtime? What is the ongoing overtime rate? Is the more logical answer to reduce hours or hire additional workers to cover the overage?

Tracking Time: One of the most important factors of compliance is tracking time. If your WFM system is not accurately or adequately tracking employee hours, your risk of being incompliant will skyrocket.

Employers:

The new regulations will not only affect employees, but will also affect employers significantly. Some of the main considerations for employers are:

- Increased Labor Costs: Budget adjustments will have to be made in order to compensation for an increase in labor costs.

- Compliance Management: Meeting FLSA standards is not a one-time event or small commitment. Organizations must take proactive measures to ensure present and future compliance. Scheduling an audit is a great way to ensure the highest level of ROI from your WFC application, specifically when restructuring for FLSA compliance.

- Employee Engagement: The change from being a salaried employee to hourly compensation can be a difficult one. A recent study by SHRM concluded “many non-executive employees view themselves as professionals and react negatively when shifted to hourly compensation.” Keeping employees content and engaged can be a challenging undertaking. It is crucial that a clear communication strategy is laid out so that employees understand the necessity and benefits of implementing these changes.

Action Steps:

• Identify all employees currently classified as salaried exempt who earn less than $50,440 a year.

• Begin to develop a strategy for responding in the event that the minimum salary threshold for exemption increases to $50,440.

• For employees who may be reclassified:

  • Calculate hours worked

  • Consider taking steps to track their hours in order to assist with modeling post-reclassification pay.

  • Train employees on how to track their time accurately

  • Make sure time sheets include acknowledgement that the time sheet is accurate and reflects all hours worked

  • Examine if the changes will affect the employees benefit

Make sure you tune in for part two of our series next week.

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