We all have heard this piece of wisdom: Time is money. But what about overtime? The Department of Labor has updated the Fair Labor Standards Act overtime regulations, consequently extending overtime pay eligibility to 4.2 million workers. In opposition to age-old wisdom, these updates do not necessarily mean that overtime is going to cost your business significantly more money – there are options for employers who want to comply with the FLSA and still minimize expenses.
A Quick Recap: What is the FLSA?
The Fair Labor Standards Act (FLSA) sets a minimum wage for all workweek hours and guarantees overtime pay of at least 1.5 times the employee’s regular pay rate for hours worked over 40 in a workweek. It also identifies those employees who are exempt from receiving overtime pay. Employees who satisfy three tests, the Salary Level Test, Salary Basis Test, and the Standard Duties Test, are exempt from receiving overtime pay.
What Changes to the Salary Level Test?
The new FLSA regulations raise the standard Salary Level Test to equal the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region, currently the South. This means full-year employees must make at least $913 per week or $47,476 annually, as well as satisfy the Salary Basis Test and the Standard Duties Test to be exempt from overtime pay, whereas previously they had to make $455 a week to qualify as exempt.
In addition, the regulations raise the salary threshold for highly compensated employees (HCE or “white collar” workers). This means that most HCE who make $134,004 and satisfy a minimal duties test are not eligible to receive overtime compensation, regardless of how many hours they work in any work week.
Options and strategies for the employer to comply with the FLSA and minimize expenses
- Evaluate your employees’ wages and hours per week to determine if any changes are necessary
The new regulations have no effect on employees who do not work more than 40 hours per week. Although certain employees may become overtime protected, you are not required to pay overtime for employees who work 40 hours or less in a week. You can continue to pay the same wage rate as before and/or employ part time workers.
- Raise salaries
After you evaluate your employees’ pay and the likelihood that they work in excess of 40 hours per week, you may want to consider paying them a higher salary to save money on overtime payments. Weigh the estimated cost of overtime against the cost of the salary increase you would need to make and decide what is best for your business.
- Pay current salaries, plus overtime after 40 hours per work week
Alternatively, you can choose to continue paying your employees’ current salary and pay overtime for employees who rarely work more than 40 hours a week. There are a number of other situations that apply where employees work a fluctuating number of hours per week. In short, any overtime-eligible employee can be paid a salary, provided that overtime compensation is paid and appropriately documented.
- Convert employees who routinely incur overtime hours but who do not satisfy the Salary Level Test to a standard work week of more than 40 hours
For example, a salaried employee who does not meet the Salary Test routinely works 45 hours each week. Convert the employee to a 45 hour work week and pay the employee overtime only for those hours in excess of 45 hours per week. But, you must pay the employee as a salaried employee and not treat him or her as if she were paid on an hourly basis.
- Reorganize workloads, adjust schedules, or spread work hours
Distribute employees’ workloads any way you wish. If there are work assignments that can be delegated to the beginning of the week, you can assign those accordingly instead of having employees work late on Friday to finish tasks. To reduce or eliminate overtime hours worked, you can also choose to hire new employees and/or redistribute work hours between staff.
The new overtime regulations do not have to cost your business more money. Consider your options and implement the necessary procedures to make sure you are complying with the law. If you have any questions regarding the requirements of the law, or if you would like assistance as you work to comply with its demands, contact one of Goosmann’s employment attorneys.