As the December 1 deadline is just around the corner small business owners have only a few short weeks to get their company in compliance with the new overtime rules.
Here is the checklist for key considerations when determining what steps your small business needs to make to comply with the changes to the overtime rules.
Determine Who is Exempt
Start by Separating your Employees By Earnings
- In the first stack put every employee earning more than $47,476
- In the second stack put all employees earning less than $47,476
Review the 1st Stack of Employees
Even though this group of employees makes more than the new salary threshold, you’ll still need to make sure that they are exempt according to the duties test. Perform a careful analysis of what the employee actually does. Specifically, do not just use the scope of their job description or title as an indicator in determining whether they are exempt or not. Remember that for any of the current exemptions to be applied, the employee’s specific job duties and salary must meet all of the applicable requirements. If the employee meets 2 out of the 3 tests under an exemption, they are non-exempt. The employee must meet all of the requirements to be considered exempt.
If the employees proves to still be exempt based on the duties test leave them in the first stack. If the employee doesn’t appear to pass the duties test move the employee to the second stack.
Determine How To Classify Each Employee
Review the Second Stack of Employees
This group of employees either makes less than the new salary threshold or they did not pass the duties test. Either way, as of Dec. 1, 2016 they are eligible for overtime. In order to manage these employees correctly (and keep your company in compliance) you’ll need to decide how to classify this group of employees and manage them in the future.
The most commonly exercised options include:
- Bumping the employees pay up to the new salary threshold of $47,476 to continue the employment relationship as salary exempt (meaning they won’t make overtime). This option is only appropriate for employees who pass each item on the duties test or whose professional classification receives an exemption.
- Changing the employee’s classification to salaried non-exempt. This means that the employee will continue to be paid a salary and now receives overtime for any hours worked beyond 40 in a workweek. With this classification option, employers must be very careful to still treat the employees salary as they did previously and not make unauthorized deductions. The employees in this category will need to track their time to identify when they work more than 40 hours in a workweek so that they can get paid appropriately.
- Re-classifying the employee to hourly non-exempt and pay them solely based on the hours worked each week Employees in this category must track all time worked and be paid appropriately for regular and overtime hours.
To make the appropriate decision on a case by case basis you’ll need to have a throughout understanding of the following for each employee:
- How many hours each employee works in a week especially during “busy seasons.”In order to determine if it would be least expensive for your company to bump up the employee’s pay or pay them overtime you’ll need to have an accurate understanding of how much overtime each employee works throughout the year.
- Their current salary. If there current salary is close to the new threshold it may make the most sense to increase their pay.
- A complete picture of what the employee does. In many cases there will be work outside an employee’s primary function that can be shifted to another role in order to avoid overtime expenses.
In order to determine the classification that is most appropriate for each employee it is important to analyze the entire scope of the employees pay and responsibilities. Once you do, you’ll have an easier time reclassifying the employee or adjusting their pay accordingly.
Employee Communication & Policy Rollout
Accurately Tracking Time Worked
It’s important that both the employees and managers understand the need for accurate time tracking, including time an employee is working outside of the office. Many employees that were previously salaried exempt are accustomed to answering emails and being available through technology outside of work. It’s important that both the employees and managers now understand any new time tracking policies and that any time spent working (even answering an email) needs to be tracked in order for the company to pay the employee appropriately.
Managing Employee Morale
It is important to have a communication plan when talking with employees that will be experiencing a change in their FLSA classification and therefore a change in how they track their time or complete the requirements of their job. The perception of going from salaried exempt to hourly non-exempt or even salaried non-exempt can be negative for some employees as it can be seen a “demotion.” Planning employee communications ahead of time can help employees understand that reclassification really isn’t a bad thing at all. Often the perception of reclassification is all in how it is communicated to the employees.