Planning for New FLSA Overtime Rules

New Fair Labor Standards Act regulations are on the horizon and they have the potential to dramatically impact organizations, from operating budgets to staffing levels and employee morale. Human Resource professionals need to prepare for these impacts, and decide what adjustments they’ll make to maintain compliance with the new overtime regulations.

What FLSA Changes Are Coming?

After initially proposing changes to FLSA overtime rules in July 2015 only to have them legally challenged, the Department of Labor recently issued new proposed changes.

On March 7, 2019, the DOL issued a new proposed overtime update. That update raises the minimum salary for an employee to qualify for overtime exemption from $23,660 to $35,308 annually. It allows employers to use non-discretionary bonuses and incentives to satisfy up to 10 percent of the salary level, and does not change the current job duties test.

The DOL is currently taking comments on the proposal, and will take those comments into consideration before issuing a final rule.

A final rule that raises the overtime exemption threshold would result in multiple financial impacts. Potential impacts include increased overtime pay, higher salaries, and benefits changes for organizations that base benefits on employee classification.

Employers are concerned about how the changes may impact morale, both for affected and unaffected employees. For example, affected employees may feel they have less flexible hours, and unaffected employees just above the threshold may feel affected if others just under the threshold are bumped up. These salary adjustments may also put organizations at risk for salary compression, a serious issue.

On the operational front, job descriptions will need to be updated, time-tracking processes may need to be altered, and staffing levels may be reshuffled.

How Can HR Prepare?

During the proposed rule comment period, Human Resources professionals can take several steps to prepare for the FLSA change.

• Conduct a detailed audit of potential positions that will be impacted.
• Analyze roles in the pay range just beyond the new threshold to see how many jobs and employees may be impacted by the changes.
• Model costs by developing scenarios to bring employees to the new proposed minimum for FLSA exempt status. For those who may be re-classified, model overtime costs.
• Update job descriptions to reflect actual duties performed.
• Engage senior leadership to develop a management and communication plan.

These steps are just a few of the many areas that will need to be addressed. For more in-depth planning assistance, consider partnering with an experienced consultant to ensure your organization is well-prepared for the changes ahead.