On May 18th, the Department of Labor handed down new regulations that will greatly affect how you pay your employees. Your organization must fall into compliance with the new Fair Labor Standards Act (FLSA) regulations by December 1. You can be assured that the DOL, which has already increased its investigative force by 33% since 2010, will put employers under even more scrutiny in the months ahead.
You must comply with the FLSA’s provisions if your organization is engaged in commerce, has annual gross income of $500,000, is a public agency or operates a hospital, health care facility or school.
Even employers that don’t meet the above criteria may find that an employee during some workweeks engages in interstate commerce: i.e., takes or makes calls to another state or sends or receives emails interstate.
This guide will bring you quickly up to speed on the steps you must take now to comply with the FLSA’s latest changes, and make sure you stay in compliance in the years ahead. If your concern is paying more overtime than ever, you now have five options to avoid potentially paying overtime to white-collar management employees:
- Increase salaries of current exempt employees to more than $913 per week or $47,476 per year. Exempt employees earning more than that will not be entitled to overtime.
- Reduce bonuses for exempt employees whose overall compensation exceeds the new minimums. Increase salaries by the bonus amounts.
- Reclassify exempt employees as nonexempt and pay them hourly. Of course, you will still have to pay overtime when they work more than 40 hours per week.
- Reclassify exempt employees and pay them on a commission or fluctuating-workweek basis. Consult your attorney to learn more about the fluctuating workweek system, which pays a salary to nonexempt employees whose schedules vary from week to week.
- Increase staffing levels to eliminate unnecessary overtime.
All of these options will require most employers to spend more money, either in salary increases, overtime premiums or additional staffing. The duties tests that define what constitutes administrative, executive and professional work have not changed under the May 2016 rules.
Defining ‘Hours of Work’
Any hour when an employee is on duty is considered time worked. The only period usually excluded: when an employee uses the time for personal reasons.
You don’t need to count meal periods lasting 30 minutes or more as work time if the employee is completely relieved from duty. But if, for example, you require someone to assist customers or take business calls during lunch, you must count those minutes as paid time. Coffee breaks or other rest periods lasting 20 minutes or less are also considered time worked.
Federal law doesn’t require rest or meal breaks for workers over age 18. Nearly half the states, however, mandate that you must provide rest or meal breaks for a specified minimum period each day.
Caution: If you require employees to wear contact devices or be recalled to duty during meal breaks, you must pay them for that time. You may incur significant liability if you’re not paying entire units of employees on call during breaks. You can be hit with back pay for up to three years, plus an equal amount as liquidated damages—not to mention attorneys’ fees.
When an employee engages in his regular duties, you must count the time as work even if it falls before or after his usual shift. (A mere few minutes of work may be excluded as unsubstantial.) If an employee is working at home or any other place outside the job site, you must also count that time if you know, or have reason to believe, that the employee is performing work.
Before the workday begins or after it ends, you don’t need to pay for time when an employee may engage in certain activities related to his regular job but not integral to it: for instance, travel between a logging camp and the site of logging operations.
In a 2014 ruling, the U.S. Supreme Court said workers need not be paid to change into and out of protective gear if a union contract has already specified that the time isn’t compensable.
Also in 2014, the Supreme Court ruled that employers do not have to pay their employees for time they spend undergoing (and waiting for) security screenings at the end of their shifts. The court said the screening process is not a “principal activity” of the workers’ jobs and, therefore, is not subject to compensation.
Exempt vs. Nonexempt Status
When a new hire comes on board, you must determine whether to classify him or her as exempt or nonexempt under the FLSA.
The key consideration: Exempt workers aren’t eligible for overtime pay. Rather, they’re paid for the job they do, not the hours they keep.
Generally, two requirements must be met before you can classify someone as exempt:
- You pay the worker on a salary basis.
- The worker holds a position with certain duties designated by the DOL as appropriate for exempt status. These positions include executive, administrative, professional, computer and outside sales as well as some highly compensated workers.
Remember: An exempt worker must meet both the salary and the duties tests.