The Department of Labor finally issued its long-anticipated final rules for the upcoming changes to overtime regulations, or as I like to call it, Christmas in May. Granted, as an employer I will have to worry about compliance just like everyone else, but as a CPA who is engaged in HR consulting, few things can pique my professional curiosity like a good old-fashioned FLSA discussion. The rules that were announced were fairly close to what was originally proposed last year, so many HR professionals have been preparing for this eventuality for some time, but many business owners are now scrambling to figure what they need to do to be compliant. Since there are many great resources out there, and because an exhaustive review of the current and coming regulations would be beyond the scope of a simple blog post, I will simply make a few comments here on issues that I feel are getting less attention than they should in the coverage that has come out in the past week. For anyone who is unfamiliar with the general rules for exempt and non-exempt employees, I will provide some links for further study at the end of the post.
Fact #1: The new rules do not go into effect until December 1. That may be small consolation to many business owners who are facing dramatic overhauls to their compensation structures and/or hiring practices, but it is far better than the 2-3 month window that many had been anticipating. As it is, there should be sufficient time for most businesses to come up with a good game plan for compliance.
Fact #2: Many businesses aren’t even compliant with the current rules. Of course, the delay only helps those that are currently in compliance with the expiring rules. Many small businesses currently assume that any employee that they choose to put on salary can be exempt from overtime. The proposed changes should make many of those businesses more aware of rules that they had long been overlooking or ignoring. It should further shed light on the danger of practices such as “comp time” that are commonly used even with non-exempt employees and are a red flag for auditors.
Fact #3: Some compensation other than base salary will now be allowed to be included in the salary test. This is a change from prior rules, where the minimum level of $23,660 (for most classifications) had to be met just with base salary. Now, some bonuses and incentive pay can be included. However, there are a bunch of caveats. Only 10% of the minimum can be met with bonuses (effectively setting the minimum salary at $42,728), the bonuses can’t be discretionary (even if the amount is variable, the employees must know about the incentive pay ahead of time and have the opportunity to earn it), and the minimum overall level must be met quarterly (which is an issue for businesses that pay bonuses annually.)
Fact #4: Salaries aren’t the only test. This ties back to Fact #2. Many businesses that are now worried about their employees not meeting the minimum salary requirements have overlooked the fact that their employees never met any of the duties tests in the first place. Again, this blog is not the place to cover those different tests in detail, but I will encourage everyone who has exempt employees to review the different classifications and make sure that their salaried employees qualify under one of the tests.
Fact #5: There are still many things that we don’t know. Almost any time a new regulation comes out, there are numerous gray areas about which businesses owners will want clarification. Some of those things will have to be answered in future rulings, court cases, and notices. What this means is that it will be important to review updated information as it comes out over the next several months to ensure that you are prepared come December 1.
If anyone would like to do further research on the new regulations, here are some links to help you get started. Enjoy!