Law

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Crunch time for new overtime rules

What small and midsize business owners need to know about the Fair Labor Standards Act update

By Brian Martucci
Mon, 2016-11-28 14:08

It’s been months since the Department of Labor officially announced a major update to the Fair Labor Standards Act (FLSA). The most impactful change involves overtime pay — specifically, which employees are exempt from overtime pay regulations, and which need to be paid extra for going above and beyond (and longer than) the call of duty.

The new rules go into effect on December 1, so it’s officially crunch time for overtime law. Here’s a snapshot:

  • Currently, millions of white-collar employees are exempt from overtime pay regulations due to “administrative,” “professional” or “executive” duties. Previously, such employees could earn as little as $23,660 per year or $455 per week. On December 1, those minimums increase to $47,476 and $913.
  • Starting December 1, up to 10% of the minimum salary requirement can be satisfied with nondiscretionary bonuses, paid at least quarterly. This wasn’t allowed before.
  • The Department of Labor will adjust the minimum exemptions every three years, starting on January 1, 2020. A notice of updated salary requirements is to be published at least 150 days before the effective date.

According to Melinda Sanders, attorney at St. Cloud-based Quinlivan & Hughes, employers may have a very limited amount of wiggle room to avoid these rules — but it’s not wise to bank on it.

“The law only requires employers to pay [overtime]…if the time worked is something more than insignificant,” she says. For instance, “answering one email [after hours] may be insignificant, but answering three emails might exceed this threshold.”

So, what do these new rules mean for small and midsize Minnesota businesses? Brian Carlson, president of St. Louis Park-based finance and accounting search firm Ambrion, advises employers to consult with an attorney or in-house counsel about the potential effects, if they haven’t done so already.

“Each of our clients have been preparing in their own way, but at a basic level each company is analyzing all positions that are under the new salary threshold and considering reclassifying certain positions to hourly,” he says. “Client size and industry type really influence the size and scope of the changes they'll need to make in order to be compliant by December 1.”

Though he stresses the importance of consulting with an attorney before making any personnel moves, Carlson advises employers to use the new rules as a springboard for a complete and thorough evaluation of their workforce and workflows.

“Small business owners should assess how their staff completes their tasks in the hours they work each week. If there are staff members that are consistently working over 40 hours a week, and don't meet the new salary threshold guidelines, their compensation will have to be reviewed,” he says.

“Educating employees about the impending changes, and offering reassurance and support for how your company will handle it will go a long way toward calming any fears related to the new rules,” he adds. In other words, communication is key.

As is so often the case with labor market shifts, the white-collar employees most likely to be affected by the changes are those with the least leverage: recent college grads.

“The impact has been greater for Ambrion’s sister company, Katapult Network, because they specialize in the placement of new college grads across industries. Positions that would have historically been salaried are now hourly, and this is a difficult thing for new college grads to understand,” says Carlson. It’s been months since the Department of Labor officially announced a major update to the Fair Labor Standards Act (FLSA). The most impactful change involves overtime pay — specifically, which employees are exempt from overtime pay regulations, and which need to be paid extra for going above and beyond (and longer than) the call of duty.

The new rules go into effect on December 1, so it’s officially crunch time for overtime law. Here’s a snapshot:

  • Currently, millions of white-collar employees are exempt from overtime pay regulations due to “administrative,” “professional” or “executive” duties. Previously, such employees could earn as little as $23,660 per year or $455 per week. On December 1, those minimums increase to $47,476 and $913.
  • Starting December 1, up to 10% of the minimum salary requirement can be satisfied with nondiscretionary bonuses, paid at least quarterly. This wasn’t allowed before.
  • The Department of Labor will adjust the minimum exemptions every three years, starting on January 1, 2020. A notice of updated salary requirements is to be published at least 150 days before the effective date.

According to Melinda Sanders, attorney at St. Cloud-based Quinlivan & Hughes, employers may have a very limited amount of wiggle room to avoid these rules — but it’s not wise to bank on it.

“The law only requires employers to pay [overtime]…if the time worked is something more than insignificant,” she says. For instance, “answering one email [after hours] may be insignificant, but answering three emails might exceed this threshold.”

So, what do these new rules mean for small and midsize Minnesota businesses? Brian Carlson, president of St. Louis Park-based finance and accounting search firm Ambrion, advises employers to consult with an attorney or in-house counsel about the potential effects, if they haven’t done so already.

“Each of our clients have been preparing in their own way, but at a basic level each company is analyzing all positions that are under the new salary threshold and considering reclassifying certain positions to hourly,” he says. “Client size and industry type really influence the size and scope of the changes they'll need to make in order to be compliant by December 1.”

Though he stresses the importance of consulting with an attorney before making any personnel moves, Carlson advises employers to use the new rules as a springboard for a complete and thorough evaluation of their workforce and workflows.

“Small business owners should assess how their staff completes their tasks in the hours they work each week. If there are staff members that are consistently working over 40 hours a week, and don't meet the new salary threshold guidelines, their compensation will have to be reviewed,” he says.

“Educating employees about the impending changes, and offering reassurance and support for how your company will handle it will go a long way toward calming any fears related to the new rules,” he adds. In other words, communication is key.

As is so often the case with labor market shifts, the white-collar employees most likely to be affected by the changes are those with the least leverage: recent college grads.

“The impact has been greater for Ambrion’s sister company, Katapult Network, because they specialize in the placement of new college grads across industries. Positions that would have historically been salaried are now hourly, and this is a difficult thing for new college grads to understand,” says Carlson.