In July the Department of Labor (DOL) announced that a new final rule, set to go into effect on December 1, will more than double the compensation threshold for exempt employees – from $455 to $913, or $47,476 annually. Recently, a bill passed the House and has been introduced in the Senate that would delay the implementation of the final rule until June 1, 2017.
If the final rule is implemented, it means that many employees who have traditionally been paid on a salary basis and classified as exempt from overtime pay will be eligible for overtime pay. According to a survey in May 2015, the mean wage in Montana is estimated at $40,620 for all occupations – this means the new rule could significantly impact thousands of Montana employers and employees. The rule is expected to critically impact small businesses and non-profits.
The Department of Labor states that businesses are expected to address the new thresholds by:
1. Converting employees from salary to hourly, or paying salaried employees overtime at an hourly rate for overtime hours worked
2. Raising employees’ salaries above the threshold
3. Ensuring that salaried employees paid less than the new threshold do not exceed 40 hours per week OR
4. Any combination of these strategies
However, for business owners, the answer may not be so simple.
Current workforce estimates indicate that nearly 70 percent of businesses are not in compliance with the rules set by the Fair Labor Standards Act, or FLSA. One of the most common FLSA complaints is misclassification of non-exempt employees as exempt. Employers who misclassify employees can be liable for significant back pay and penalties – often at the employees’ word that they worked overtime.
So what are some best practices that employers can implement now that may prevent headaches in December?
We recommend that employers regularly review job descriptions with salaried employees. Ideally, this is done on an annual basis. This helps to ensure that employees who are classified as exempt are still performing the duties that make them exempt.
Employers can also track employees’ time – in the lead up to December 1, this will be especially critical for salaried employees who are at or near the threshold. Accurate records of the time your employees actually spend at work will help to make informed decisions about pay under the new final rule. Montana-based company Orbital Shift provides time tracking software that can help. For more information on Orbital Shift and their products, visit their website https://www.orbitalshift.com.
And finally, employers should talk to employees about any proposed changes. Employees are likely to be confused about why they are being converted from salary to hourly or why they are receiving overtime for essentially the same work as previously performed, which may lead them to challenge previous pay under the FLSA. Proactive, transparent communication will help to ease any transitions.
Still have questions? The Department of Labor website has a number of resources for employers. Local HR groups or payroll specialists can also help. And for members of our portfolio companies, we’re happy to assist at any time.