December 1st is only 3 months away. Is your organization ready?
In a recent blog, I explained how to identify your “At Risk Exempts.”
Now that you know who is at risk of losing their exemption status, let’s see what you need to do to be Overtime Ready by December 1st.
September 2016 – Gather numbers of hours worked by “At Risk” exempts.
With the list of “At Risk” exempt employees (those earning a salary under $47,476) in hand, you now need to find out the hours worked by each one. Remember those working more than 40 hours per week will become eligible for overtime pay.
If you currently track employees’ hours, you can easily find out the hours worked each week. Professional firms such as accounting and legal firms require their employees to track hours for client billing. Non-profit agencies operating on grant money also track hours to justify their grant used. Those organizations have a leg up on the rest of us.
However, most employers do not track exempt employees’ hours. But this needs to change. Start tracking exempt employee work hours today! Consider tracking all hours not just those who risk losing the exemption.
Don’t assume you know how many hours are worked. Tracking hours worked can be challenging. It is more than time in the office. It includes time spent answering emails, making work-related calls from home or telecommuting. In some cases, travel time should be included too.
Having an accurate accounting of hours worked per week over a meaningful period of time is very important to comply with the new overtime regulations.
October 2016 – Decide on (re)classification of employee. There is no “one size fits all”.
Armed with the hours worked and the current salary of each of your at-risk exempt, consider the following questions:
- Can we increase the rate of pay to $47,476 (or more) and maintain this salaried employee in the “exempt range”? When the current salary is close to the new threshold, anticipating a salary increase will allow you to maintain the exemption. It’s probably worth it to your organization and to maintain morale. This is the best case scenario.
- How much is the likely cost of overtime pay? When employees don’t usually work much overtime, the reclassification from exempt to non-exempt might feel like an administrative process. However, consider what’s coming down the pipe for your operations. Many changes affect hours worked. For example, the implementation of a new software, the impact of seasonal changes in work hours could drive a significant overtime bill for when those employees are reclassified as non-exempt.
- Does the employee earn incentive pay? For the first time, the new FLSA regulations allow for bonus and incentive pay can be included in the calculations of the new salary threshold for exemption. However, incentive pay must be capped at 10% of total salary. In other words, employees making $42,730 in wages meet the new salary test if they also earn at least $4,750 in nondiscretionary bonuses and incentive payments (including commissions). Don’t forget to add incentive pay when looking at earning levels of your at-risk exempts.
November 2016 – Communicate with employees.
Have a communication plan for employees who will be reclassified but don’t ignore those who won’t.
Set up one-on-one meetings with all employees who will be reclassified. They will have many questions around the changes. Here are some of the important points to share with them:
- Explain why the change in classification for some employees and not others
- When it will be effective
- For newly non-exempt employees, highlight what will change for them such as the new rate of pay, the opportunity for overtime pay (or not), how to get authorization to work overtime even from home, the need to record all hours worked.
- Always assure the employee of their importance to your organization.
The likely reactions from the affected employees will range from a shoulder shrug to high emotions. Some employees will see this change as a demotion. Having a meaningful, personal conversation about why you had to make these updates will make the transition easier. Be prepared for follow-up conversations when emotions run high.
Consider also an all-hands meeting to explain the changes to your entire workforce.
Over the next three months, we will consider each of those steps in more detail to help you be Overtime Ready by December 1st.
Next time – How to track hours in a fluid workplace. You need to know this stuff!
Additional resources to be Overtime Ready by December 1st: