Topics: FLSA Compliance
December 1, 2016, ushers in the new FLSA rule concerning overtime pay for your employees. Have you prepared your payroll department? The new mandate sets its sights on those situations where employees, especially the salaried, work more than 40 hours per week without receiving overtime compensation. While the rule also covers hourly, piecework and tip-compensated employees, the main thrust is to update the salary minimums that trigger required overtime pay.
Until the first of December, if a salaried employee earns $23,660 ($455/wk) or less, you've been required to pay overtime on all time worked after 40 hours per week. On the first of December and thereafter, any salaried employee earning $47,476 ($913/wk) or less qualifies for overtime pay at time and a half. All overtime pay for any employee must be at least time and a half except in situations where the employee lives with the employer, such as a nanny.
The FLSA only counts overtime as more than 40 hours per week, but some states reckon it as any hours after 8 in one work day. The more restrictive law prevails as the government will let you exceed its own requirements, of course.
Old Work-Arounds Are Busted
All salaried employees beneath the genuine executive level fall under the rule, regardless of their title or job description. In other words, having the auspicious title of "Vice President of Relationship Development" cannot exempt you from paying overtime to the salaried person who serves as an office receptionist.
Employers must track employee hours by mandate, even if documentation consists of nothing more than marking a week-at-a-glance calendar. The overtime rule leaves the methods of tracking up to the company. However, you must retain that documentation one way or another.
Also, paying on a two-week schedule so you can average weekly hours over the two weeks won't cut it. So, if your business is hot and cold on a two-week rotation, and your employee works 50 hours in one week and 30 in the next, completing the pay period, you will still have to pay ten hours of overtime.
Other Requirements to Remember
- Commissions count towards salary.
- Piecework pay must be formulated to arrive at how much the employee earns per hour per week. If the hours worked exceed 40, you will need to pay overtime based on pieces completed times pay per piece divided by 40 (Example: 10 chairs sanded x $10 each taking 40 hours to complete = $100 / 40 = $2.50 per hour base pay. But if the worker took 45 hours to sand 10 chairs, you pay $3.75 per hour for the extra 5 hours.)
- Tips need not be added to the base pay rate for overtime hours, so whatever the employee's base pay is before tips serves as the foundation for overtime calculations.
- For split-scale pay, overtime is calculated on the pay scale in effect when the overtime occurred. For example, if your employee receives $10/hour to work in your restaurant's kitchen but $12/hour to greet and seat guests and that's what they were doing when they exceeded 40 hours for the week, the overtime is to be based on the $12/hour rate.
- Up to 10 hours per week paid for skills training are exempt. So, you could work a new employee 40 hours in a week and pay them regular pay for up to 10 more hours while they attend training sessions that week.
- Genuine executives are exempt.
What Do You Need to Do?
Your payroll department should have the software database set up to automatically recognize overtime hours worked by all non-exempt employees. The rules really present little change other than in the threshold minimums and elimination of loopholes. However, if your company has depended on those loopholes, what can you do to avoid paying overtime to the newly-qualified workers?
- Raise salaried workers' pay to meet or surpass the minimum threshold.
- Make sure salaried, and any other of your employees, don't work more than 40 hours per week or eight hours per day, if your state mandates kick in on a per-day basis.
- Switch to hourly pay instead of salary, although this makes no difference at all to the new rule, only to your ease of calculations.
- Hire more part-time employees to prevent overtime for full-timers.
If the changing rules and regulations make your payroll department feel they are losing a wrestling match with a grizzly bear, you might consider the benefits of teaming up with a dedicated partner. With a little help, or a lot, you can keep your company in compliance and never need to fear reprisals from payroll mistakes or oversights.