November is here and the new FLSA White Collar Exemption rules are right around the corner. With these important changes only a month away, we know you’re likely concerned and have questions, so we’re devoting this Advisor newsletter to the new rules and what they mean for your organization.
Most states provide protected time off (sometimes paid) for employees to vote if their schedules would not otherwise allow time to do so. Check the HR Support Center State Laws section to find out what your obligations are as an employer.
FLSA Changes: Updating Your Policies and Practices
Have you reviewed your policies and practices in light of the upcoming FLSA overtime changes?
Reclassified employees may have to follow procedures and policies that didn’t apply to them before—or that you didn’t have. Changing habits can be a challenge, but changing those of your formerly exempt employees with respect to hours worked and tracked is critical to preventing wage and hour violations.
Newly non-exempt employees are likely used to “running the clock” after hours. They may be in the habit of responding to work email, finishing up projects, taking client calls, or engaging in other work tasks during non-work hours. It’s therefore advisable that your policies are clear about expectations and the organization’s commitment to recording all time worked by nonexempt employees.
Consider that your previously exempt employees may not be familiar with your timekeeping procedures, such as tracking time to check emails and turning in recorded work time for each pay period. Review these procedures with them, keeping in mind that non-exempt employees must be paid for all time they are “suffered or permitted” to work. This doesn’t just mean time in the office, but all time, whether it’s approved by the employer or not.
As mentioned above, all hours worked by a non-exempt employee must be recorded and compensated, even those performed outside of the employee’s standard shift. Therefore, it’s critical to have a policy in place that informs employees that all time worked must be tracked, that off-the-clock work is prohibited, and that employees may be disciplined for not following their scheduled shift. Please note that refusing to pay for unauthorized time worked—whether it’s regular or overtime—is not permissible.
Employees Using Their Personal Electronic Devices
Time a non-exempt employee spends doing work from their smartphone, tablet, or personal computer is considered time worked, and employees may find this hard to resist if their phone is chirping at them from their pocket every time a new work email comes in. For this reason, you may want to prohibit a non-exempt employee from using their personal devices for work purposes at all, or only allow such use upon authorization from the company. For instance, if you’d like particular employees to check and respond to work email over the weekend, build that time into their weekly schedule so it doesn’t lead to unexpected overtime.
Meal and Rest Periods
Many states require meal and/or break periods for non-exempt employees. It’s important to inform employees of these breaks, explain the procedures for clocking in and out, and remind them that no work should be performed during this time.
This is an area where it will be particularly important for your managers to be willing to manage. Employees who previously worked through lunch at their desk and could put in their eight hours between 9 and 5 might not want to take an unpaid lunch period or break, thus extending their workday. State law, however, may be indifferent to their feelings. If employees ask to waive their meal or rest periods, you’ll want to check the Break and Rest Period pages under State Laws in the HR Support Center. Sometimes these breaks can be waived, but sometimes they cannot. And waiving them sometimes requires special circumstances and agreements between employers and employees.
Again, if work is performed, it must be compensated (and penalties may apply), so the policy should include instructions for notifying a manager or supervisor if a working meal period occurs.
Now is the time to ensure that you’re familiar with your state and local overtime laws. Although most employers will only be subject to the federal requirement to pay time and one-half for hours worked over 40 in one workweek, Alaska, California, Colorado, and Nevada each have daily overtime provisions, and Massachusetts and Rhode Island require some employers to pay a premium for work on Sundays and certain holidays. Employees and managers need to be aware of the rules for compliance. And you should make sure that your own expectations for overtime work are written in your policy and communicated to your employees.
Since non-exempt employees must be paid for all time worked, you may need to consider travel time for those customarily engaged in work travel. There are a few narrow exceptions when travel time isn’t payable (e.g. when the employee is a passenger in a vehicle outside of regular work hours or during a standard morning/evening commute), but it’s good to assess your non-exempt employees’ travel schedules to ensure proper pay.
Incentive pay: Per FLSA requirements, overtime must be calculated weekly based on the employee’s “regular rate of pay.” Incentive pay (non-discretionary bonuses, commissions, or any other non-hourly pay) is included in the regular rate of pay calculation. For weeks in which a non-exempt employee earns both overtime and incentive pay—whether provided at the time or retroactively—you must calculate (or recalculate) the employee’s regular rate of pay so that it includes both their base pay and incentive pay for the week. The new amount should then be used for overtime calculations.
Workweek: Every company must have an established workweek that is not adjusted or altered to avoid overtime. This is the 168-hour period during which you will track each employee’s hours to determine their pay and if they are owed overtime, e.g. Sunday at 12:00 am through Saturday at midnight. Each workweek is assessed individually for overtime calculations, and overtime must be paid for each workweek in which it is earned. Payroll, managers, and employees should know what the set workweek is.
If these policies and practices aren’t currently covered in your employee handbook, we recommend adding them now, or distributing them separately as handbook amendments. Once distributed, employees should sign-off to acknowledge their acceptance and understanding of these important policies. If your policies and practices are already covered in your handbook, reemphasize them with the newly reclassified employees.
Could The New Rules Be Thrown Out?
While attempts have been made to challenge or delay the new rule, we have seen no indications that changes are likely before the effective date (if at all). Therefore, employers should plan to be in compliance when the new rules go into effect on December 1st.
Question & Answer
Q: One of our employees who is moving from exempt to non-exempt is taking the change in classification personally. Even after a company-wide meeting with those affected where everything was clearly explained, this employee insisted on having one-on-one follow up meetings with five different managers. We would like to write him up due to the excessive amount of time he has taken from his work and the work of the managers. Do you have any suggestions for the best way to handle this?
A: I’m sorry this employee is not taking the change well. We anticipated that some employees would be resistant to reclassification and require more convincing that everything will be okay.
I recommend against disciplining the employee for his behavior thus far. The managers granted all the meetings that the employee requested. Retroactively punishing him for these agreed-to meetings would send a mixed message and be perceived as grossly unfair.
Assuming the employee has had all of his questions answered clearly, in a way that he should be able to understand, I suggest telling him that the topic is now closed for discussion and additional working time should not be spent on it. This conversation (or e-mail) should not come across as discipline or even a warning to the employee, but you should document it in case the situation escalates further.
The employee’s classification is squarely within his “terms and conditions of employment,” and discussing those terms and conditions is the right of all employees protected by the National Labor Relations Act. As a result, you can’t stop him from—or punish him for—talking about this issue during lunches, breaks, or outside of work. That said, you can deny requests for any additional meetings and require that he stay on task during his regular working hours.
FLSA Changes: FAQ
What are the new minimum salary levels, and when will they go up next?
As of December 1, 2016, most exempt executive, administrative, professional, and computer employees need to be paid at least $913 per week ($47,476 per year).
Also as of December 1, employees who are exempt under the Highly Compensated Employee (HCE)* exemption will need to be paid at least $134,004 per year.
The next increase (after the one next month) will be on January 1, 2020. Current projections estimate that the minimum for most white collar employees will increase to $51,168, while the minimum for employees who are exempt under the HCE exemption will increase to $147,524.
*The HCE exemption is an option available for lower level employees who are paid a very high salary. It is not allowed in a number of states, including California, Oregon, and Washington. Most employers will never use this exemption.
Can a part-time employee be exempt?
The salary threshold does not fluctuate based on the number of hours worked by an employee. To qualify as exempt, an employee must make $47,476 per year and at least $913 per week—every week—no matter how many hours the employee works. They also must be paid on a salary basis, meaning their pay doesn’t fluctuate based on number of hours worked or the quantity or quality of their work. Finally, they must also pass the duties test for at least one of the FLSA’s exemption categories.
What’s the difference between a non-discretionary and discretionary bonus?
The FLSA defines non-discretionary bonuses as those that are announced to employees to encourage them to work more steadily, rapidly or efficiently, and bonuses designed to encourage employees to remain with an organization. If there is an established set of criteria that an employee must meet, and the bonus is guaranteed to be earned once those criteria are met, the bonus will be considered non-discretionary. All non-discretionary bonuses must be included in the regular rate of pay and will impact the overtime rate when they are issued in the same workweek in which overtime is earned.
Discretionary bonuses, however, may be excluded from the regular rate of pay and overtime calculations. A discretionary bonus can be given to an employee for any reason or no reason at all. Generally, they’re given out of appreciation, loyalty, or good service. While employees may have a sense that they might get such a bonus, they are neither announced nor guaranteed to employees ahead of time.
Can non-discretionary bonuses and commissions count towards the minimum salary threshold?
Up to 10% of the minimum salary threshold—$4,747—may come from non-discretionary bonuses, commissions, or other incentive pay. These payments must be made on at least a quarterly basis, and if the employee does not earn enough of this incentive pay to be on track to reach the exempt salary threshold, the employer must pay the difference to keep the employee’s exemption intact. This “catch-up payment,” as the DOL calls it, must be made within one pay period. Note that employees exempt under the Outside Sales Employee exemption (which is narrow) are not subject to the minimum salary requirement, so this is just for otherwise exempt administrative, executive, professional, and computer employees who also earn commissions.
Does this change even apply to me?
Almost certainly. There are two ways in which employees can be covered by the FLSA. One or both will apply to almost every employee in the country.
The first kind of coverage is called “enterprise coverage.” This applies when an employee works for an employer who has an annual dollar volume of cash sales or business done of $500,000 or more. It also applies if the employer is a hospital, business providing medical or nursing care for residents, school or preschool, or government agency, regardless of the amount of sales or business done.
The second type of cover is called “individual coverage.” Even when there is no enterprise coverage, the FLSA will cover individuals engaged in interstate commerce. If an employee places telephone calls to another state, sends or receives out-of-state shipments, processes credit cards, debit cards, or personal checks, or partakes in any number of other basic business activities, they will qualify for individual coverage.
Tool of the Month:
FLSA Changes Implementation Guide
The HR Support Center has everything you need to get up to speed on the FLSA changes. See the “New Overtime Rules!” featured link on the homepage for all our FLSA content. Just click “Get Started” and you’ll be brought to a list of guides, articles, trainings, and more!
The Performance Evaluation Cycle
In this month’s HR Cast, available in the HR Support Center on and after the 15th, we’ll discuss the importance of making performance reviews part of a regular, ongoing performance management process.
The new FLSA overtime rules become effective on December 1st. This may be the first day of your payroll period (the Department of Labor was probably hoping that would be the case when they chose the date), but since it’s a Thursday, it’s very possibly smack in the middle of your pay period instead. Keeping this in mind, we strongly suggest you make the necessary changes in employee classifications and pay structures no later than the beginning of the payroll period that includes December 1st.
You may even want to consider making the changes an entire payroll period prior to that. This way employees who don’t understand their new paystub will have an opportunity to ask you questions prior to the law going into effect. Having the extra few weeks to iron out any kinks and put employees’ minds at ease may help you prevent knee-jerk phone calls to the Department of Labor.
The Fair Labor Standards Act was passed in 1938, at which time it set the federal minimum wage at 25 cents per hour. Since then, the federal minimum wage has increased 22 times, with varying real-dollar values (i.e. what the value would be in today’s dollars). These real-dollar values have ranged from $4.06, when the FLSA was passed, to $10.69 in 1968. The minimum wage was its most valuable—consistently worth more than $9 per hour—from 1963 until 1981.
In 1938 the minimum salary for exempt employees was set at $30 per week. It has (of course) also changed over the years, though not nearly as frequently as the minimum wage. In fact, since the threshold was increased to $155 per week in 1975, we saw only one adjustment—29 years later in 2004. The 2004 change increased the minimum weekly salary nearly 200%, to $455 per week. This year’s 101% increase to $913 per week is therefore large, but not unprecedented.
As we express our gratitude, we must never forget that the highest appreciation is not to utter words, but to live by them.”
– John F. Kennedy, Thanksgiving Day Proclamation, 1963
November 1 – Veteran’s Day
November 8 – Election Day
November 24 – Thanksgiving Day
November 26 – Small Business Saturday
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