What Is Changing On FLSA Exemption?
In September 2019, the Department of Labor (DOL) announced it was raising the earnings thresholds necessary to qualify for FLSA exemption from overtime for executive, administrative and professional employees. The updated earning threshold is $684 per week (equivalent to $35,568 per year). This represents a 51% increase from the current threshold of $455 per week and will be effective on January 1, 2020.
Employers are now allowed to count nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the standard salary level. This change recognizes the change in pay practice.
What Does The New FLSA Exemption Mean?
Identify the “At Risk” exempts in your workforce i.e. those earning less than $35,568.
Based on the hours worked, the potential for overtime cost and how far from the new exempt salary level, you need to decide:
- Maintain the earning levels unchanged and reclassify as non-exempt
- Keep the exemption status and increase their compensation to meet $35,568 including potential bonuses and commissions.
If you hinge on the side of keeping the exemption, make sure the position still meets the duties test for executive, administrative, or professional exemptions. Companies change. Work evolves. Some jobs may not satisfy the duties test especially if technology has impacted the scope and scale of decision and independent work. Not sure how to run the duties test? I can help. Contact me.
Find the right approach
Don’t assume your employees don’t have a clue about overtime regulations! It was headline news in mainstream media when the announcement came out in September. It also directly impacts their pocketbook so they are likely to pay attention.
Don’t assume they understand the changes well. Take time to explain the basics. For example, make sure supervisors and managers understand the difference between exempt employees (those paid on a salary basis usually referred as “management”) and non-exempt employees (those paid on an hourly basis who do not meet the requirements of an exemption from overtime).
Communicate With All Employees
Consider an all-hands meeting to explain the changes to your entire workforce. Even those who are not affected by the changes need to understand why colleagues might be reclassified. When handled with finesse, these communications can be a morale booster.
If not, be prepared for some after-shocks!
Communicate With Your At-Risk Exempt Employees
Set up one-on-one meetings. Employees who are reclassified will have many questions around the changes. Here’s what you need share with them:
- Explain why the change in classification impacts some employees and not others
- Changes are effective in January 2020
- Provide new hourly rate of pay
- Explain what the changes mean beyond an hourly pay rate e.g. the opportunity for overtime pay, how to get authorization to work overtime, the need to record all hours worked (clock-in and out every day not just when overtime might happen)
- Always assure the employee of their importance to your organization.
Be prepared for each employee
Reactions from the reclassified employees will range from a shoulder shrug to high emotions. Some will see it as a demotion. Others will be happy to hear they might get overtime.
You probably know how each employee is likely to react to the reclassification news. Approach them accordingly.
Having a meaningful, personal conversation about why you had to make these updates will make the transition easier. Be prepared for follow-up conversations if the initial conversation is emotionally charged.