Overtime Rules Finalized, FLSA Classification Changes Are Coming

On May 18, 2016,  the U.S. Department of Labor (DOL) published its final rule regarding overtime pay. According the DOL, approximately 4.2 million American workers are currently classified as exempt from overtime pay yet currently earn salaries that fall below the new minimum threshold. Under the Fair Labor Standards Act (FLSA) the new overtime rules increase the minimum weekly salary amount and extend overtime pay protection to these workers.

What does the new overtime rule say?

A fact sheet, released by the DOL, states the new overtime rule increases the minimum salary for employees to become overtime exempt from the current level of $455 per week — $23,660 annually — to $913 per week, or $47,476 each year. At the same time, the rule also creates a way to automatically update this minimum salary every three years.

How does this affect my local businesses?

This law directly affects local businesses by altering employee classifications. It gives some employees new overtime protections, including many shift managers and other supervisors at restaurants and retail establishments.

As a result of the new overtime rule, employers have until December 1, 2016 to do one of two things:

• Give exempt employees who make below this new threshold a raise; or
• Reclassify them as nonexempt workers

This may not mean an increase in total wages; it could just mean a conversion from an annual salary to an hourly rate. Unless these employees already earn a salary close to the new minimum, it will not make financial sense for most business owners to opt for the first option. Instead, these managers will most likely be scheduled as hourly workers. We have some guidance and an easy calculator to help you convert an existing salary into an hourly rate.

The change in employee classification means you’ll need to evaluate the current workload of affected employees, and determine if their current workload needs to be redistributed to other employees. This may require allowing your top performers to work some pre-approved overtime hours, or hiring additional employees while you make scheduling adjustments.

Other changes may include altering your business vacation and sick time policies, or changing the way these employees accrue this time. Bonuses may also be affected, although the new rule allows employers to count nondiscretionary bonuses, commissions, and incentive payments for up to ten percent of the salary minimum. Previously, these payments could not count toward the salary threshold.

What does this mean for employee scheduling?

The local retail businesses and the restaurant industry will be hit particularly hard by these overtime rule changes, particularly team leaders, shift managers, and general managers being affected. The FLSA requires all employers to maintain time cards and other non-exempt employee records in order to ensure that these employees receive the pay for hours worked.

There are a few things to keep in mind when you make the change:

First, the new rate must be higher than minimum wage for your jurisdiction. If the effective hourly rate ends up lower, you’ll need to either adjust their hours or increase your total labor budget.

Second, you’ll also need to start complying with state meal break and rest break requirements. You can use the free timesheets from Homebase to automatically track these breaks and calculate overtime, eliminating work.

The effective date of the final overtime rule is December 1, 2016. What kinds of scheduling changes will you be making? Let us know in the comments below!

Carol Wood is the People Operations Director at Homebase. At Homebase, Carol focuses on providing thought leadership, tips and tricks, and scalable HR solutions for the 60,000 businesses that Homebase helps to make managing hourly work easier. Prior to Homebase, Carol focused on helping small and medium businesses navigate the tricky waters of human resources, working with companies across the retail, food service, oil and gas, and healthcare industries through her roles as HR Director at Fuddruckers and Achilles Group, a Houston-based HR consulting firm.