Important Updates to FLSA Regular Rate

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Important Updates to FLSA Regular Rate

The US Department of Labor has finalized an update to the Fair Labor Standards Act (FLSA) on the minimum salary threshold in order to qualify as an exempt employee as of December 13, 2019. This update will be effective on January 1, 2020, so there is little time left to take proactive measures! As the previous minimum salary compensation was $23,660, employers must now compensate exempt employees $35,568 annually.

The updated rule also clarifies how employers may determine when a bonus is discretionary vs nondiscretionary, as well as when certain employer provided benefits may be excluded when calculating overtime pay for non-exempt employees.

This is the most substantial update to the regular rate requirements in nearly 50 years, meaning many HR professionals and business owners will be navigating brand new territory. Change can be daunting but doing your due diligence to assess your current workforce, proactively make any changes necessary, and educate the employee population can aid in an easier transition.  

Self-Audit All Employee Pay Categories

We suggest you begin with a full-scale audit of your salaried employees, including what their salaries are and the full slate of benefits they receive. This will get you a baseline of data to work from in deciding which direction to go next.

Determine which benefits offered to your salaried employees are included when calculating overtime compensation. The newest ruling provides employers with a list outlining which benefits can be excluded, so it’s worth a glance. Keep in mind, your hourly employees, commission-only employees, and possibly even your part-time employees may be affected by this update.

Determine Exemption Status

Exemption status is determined by wages and duties. While the wage minimum threshold was updated in the new ruling, the duties test has not changed. Any employees that were formerly exempt from overtime based on duties are still exempt if their job duties have not changed, and if they meet the new compensation threshold. However, this would be a prime time to review job duties and titles and make sure they both accurately describe what an employee does.

Make Necessary Changes

With all the above data, determine which salaried employees must be reclassified as hourly, non-exempt employees; and therefore newly eligible to receive overtime pay. It’s estimated over a million new workers will be eligible from the updated ruling, so it’s quite possible someone on your workforce could be impacted.

You have a few choices when deciding how to handle non-exempt salaries. You could increase exempt benefits packages for employees, convert certain job types to hourly pay rates, or raise salaries to the new threshold. Word of caution however; universal salary raises must be done very strategically to prevent salary compression, which can spell ruin for a workforce.

Skywalk Group’s human resource consulting and outsourcing services helps each individual employer find the right path for them to strategically, and fairly, compensate employees in all categories. Contact us today to learn more about how a partnership with Skywalk Group can make your workplace more effective and efficient!