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Is Your Business Ready: New DOL Compensation Rules

If your business has ‘exempt’ employees there are significant changes effective 12/1/2016 that will have an estimated $1.2 Billion effect on U.S. businesses.

As an employer you should review and update both your employee manual and employee pay procedures after discussing these changes with your Human Resources or legal professionals. Failure to update your procedures and documentation could open you up to significant costs as you pay fines, legal fees and unexpected overtime wages.

Jackson Lewis P.C., a law firm specializing in employment law has developed a very informative recorded webinar.

Some key features of the Department of Labor’s (DOL) changes to the Fair Labor Standards Act (FLSA) include:

  1. Minimum salary levels for exempt employees more than doubles from $23,660 to $47,476.  Duties test still applies.
  2. Highly compensated exemption salary threshold increases from $100,000 to $134,004.  Duties test still applies.
  3. The minimum salary levels above will automatically change every 3 years going forward.
  4. Bonuses and incentive compensation may now be used to satisfy up to 10% of the minimum salary for exempt employees.
  5. The outside sales and professional exemptions appear to remain unchanged.
  6. Non-profit organizations are still subject to the act but there has been significant clarification as to how the act applies to employees of non-profit organizations.

Some potential fixes to those with exempt employees that will no longer qualify after 12/1/2016 include:

  • Convert salaried employee to hourly.  How will your employees respond to not having a guaranteed salary each week?
  • Work with your attorney, accountant or human resources professional to determine how to pay overtime when necessary to your salaried workers.
  • Increase salary and keep the employees exempt but consider how those employees just above those you increase will respond…will they want raises as well?
  • Hire additional workers to reduce the necessity of paying overtime.

Note that Offering Comp Time to employees that work more than 40 hours per week in lieu of overtime appears to be forbidden by the act.

Before concluding this article I’d like to leave you with a few additional thoughts:

  • Remember that for many of your employees the ‘can I leave early for a family event and make up the hours next week’ question will soon carry a cost…overtime wages.
  • If you need to start tracking hours for employees, how will you do so?  Time clock, track access through electronic means (telecommuters), self report…
  • If your employee manual doesn’t address requesting permission ahead of time to work more than 40 hours then it may be time to institute this rule.  Otherwise you’re essentially writing blank checks to your employees.
  • Change can be upsetting, especially for security driven employees who are used to getting the same amount in their paycheck each month.  Make sure to communicate with your employees not only about the pay and procedural changes but also why they are necessary.
  • While Employment Practices Liability Insurance can protect you from most employment related financial liability losses I would not anticipate any coverage for failure to comply with the FLSA.

Finally, there is a significant potential for additional labor costs…to the tune of over $1.2B per year for U.S. employers, so make sure that you spend the time necessary to assure compliance.


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