Why should you care about the upcoming changes to the Fair Labor Standards Act (FLSA)? For starters, if you have an employee who earns less than $47,476 per year you will now need to classify them as “Non-Exempt” (fancy way of saying paid hourly), which means they’re eligible for overtime. I’ll give you a minute to let the shock wear off. Now, lets talk about the changes and what you can do to be prepared.
- Any employee who earns less than $47,476 per year will need to be paid hourly. If they work more than 40 hours per week, you will be required to pay them overtime pay which is 1.5 times their hourly pay rate.
- The new rule goes into effect on December 1st, 2016. Check your calendar and you’ll notice December 1st is a Thursday. What that means is the real effective date is Monday, November 28th.
- 10% of the $47,476 can be paid as a bonus, reducing their actual hourly rate but there are strict guidelines around the type of bonus and when it must be paid.
There are several other changes included in the new rules but those are the most important. There are a few things to think about aside from the obvious:
- If you don’t have a way to track your employees work hours you will need to find a way to do so.
- Employees going from “salary” to “hourly” could feel like they’re getting demoted when you tell them they now have to punch a clock.
- The FLSA requires pay for ALL hours worked during the week. This includes an employee sitting at their desk and working through lunch, being on-call, checking and responding to emails from home, etc.
The consequences for not following these news rules are the real scary part. Consider the following example that I heard from a group of attorneys recently. The Department of Labor (DOL) determined that an ex-employee of a company was not paid for a few hundred hours of OT they worked during a three-year period prior to the employee being terminated. This OT pay equaled $4700. The fine is that the company must double that amount taking the cost of non-compliance to $9400. You also have to pay for the employee’s attorney fees. In this example, the attorney fees were $130K. The company also had to pay for their own attorney. In the end, the company spent north of $150K and the employee pocketed $9400.
So what now? There are several things you can do now to be prepared for December 1st. The first is let LOOP perform a payroll audit to determine any potential problem areas. We can then advise you on what steps to take to avoid costly fines, reduce payroll costs, and ensure you’re in compliance with the DOL. Give us a call at (706) 922-7654 to schedule an initial evaluation.