How to properly calculate FLSA overtime to ensure compliance with new FLSA regulations going into effect on December 1, 2016 is uppermost in the minds of HR managers and small business owners across the country. The updates to the FLSA regulations mandate that salaried employees making up to $913 a week/$47,476 a year be considered non-exempt for overtime calculations.
This will significantly impact payrolls of many companies and managers are looking for anyway possible to offset the increased costs they are anticipating. Below are several scenarios that businesses have successfully and unsuccessfully implemented as potential ways to deal with the new regulations:
Using paid meal or break times to offset OT calculations. Paid breaks per hours worked are mandated by the Department of Labor and a recent court case in the Third Circuit of Appeals involving DuPont has clarified the “silence” some feel the FSLA has on this.
“Compensation included in, and used in calculating, the regular rate of pay is reflective of the first forty hours worked,” the court said. “[A]llowing employers to then credit that compensation against overtime would necessarily shortchange employees.”
The bottom line is, do not do it.
Decreasing base salary so that OT keeps the employee at the same salary level. You could do this, for example by reducing a salaried employee’s base of $40,000 by $10,400 to account for the 10 hours of overtime they have historically worked, effectively keeping them at the same pay rate.
However, keep in mind the consequences this might have on employee morale.
Increasing base salary to over the exempt level. For many employees in the $35,000+ range, increasing base salary to the new exempt status would provide fixed payroll costs while maintaining employee moral and compensating employees for the OT the are putting in.
Put in place strict overtime guidelines. Preparing for the new regulations has caused many employers to realize just how much time their employees are spending in the office.
Depending on their situation, telling salaried employees they are now going to be clocking in and out and can no limited to working 40 hours a week can have negative consequences on morale, especially in entry-level or non-profit categories.
According to recent interviews conducted by Society for Human Resource Managers, “many employees who have chosen a career of service are offended that they now have to limit their work to 40 hours a week and don’t feel as though they can accomplish their mission,” Jason Carney, HR director for WorkSmart explained.
“We’ve seen this same reaction among entry-level and upwardly mobile employees who take pride in working well over 40 hours a week and see it as the best way to advance their careers. I’ve gotten reactions from employees, especially in the service industry, who feel that being limited to 40 hours a week inhibits their growth and doesn’t give them the ability to put in the extra work they see as necessary to seek a higher management role.”
Apply up to 10% of bonuses to the salary base. According to the DOL, “Nondiscretionary bonuses and incentive payments (including commissions) are forms of compensation promised to employees to induce them to work more efficiently or to remain with the company. Examples include bonuses for meeting set production goals, retention bonuses, and commission payments based on a fixed formula.”
Careful monitoring is necessary when an employee may not meet the necessary quota and “catch-up” periods come into play.
Another little known tool that might work for your company is utilizing a fluctuating work week pay plan structure. Implementing this requires a solid understanding of how it works and presenting the plan to employees in a clear fashion.
No matter what approach you take, clear communication with your employees is crucial to successfully navigate the transition while keeping employee moral high. How can we help you navigate these new regulation changes and mitigate the financial impact on your P&L? Contact us today!