The day has finally come! An announcement on the final amendments to the Fair Labor Standards Act (FLSA) white collar exemption rules has been made. The amendments include:

– Most employees making less than $47,476 annually are non-exempt and must receive overtime pay for working more than 40 hours per week.

– This salary level will be updated every three years to fit the 40th percentile of full-time salaried workers in the lowest-wage Census region. The next update will be January 2020.

– Highly compensated employee exemption qualification will now be based on the 90th percentile of full-time salaried workers nationally, increasing from $100,000 to $134,004.
– For the first time, non-discretionary bonuses and incentive pay (including commissions) are now permitted to count towards up to 10 percent of this new standard salary level.

What does this mean for your organization? Start planning now so you put changes into place by Dec. 1.

Some options for employers for adjusting to new FLSA regulations

1. Review job descriptions and change who is responsible for certain tasks.

In order for an employee to qualify for exempt status*, they need to meet the salary test and the other guidelines that qualify them for one of the four exemptions: administrative, professional, creative or executive.

One of the most common and confusing of these is the administrative exemption, which states the employee “must exercise discretion and independent judgement in matters of significance.”

The exercise of discretion and independent judgment must be more than the use of skill in applying procedures or standards described in manuals or other sources. These decisions should make up more than half of an employee’s time on the job.

2. The obvious option — give employees a raise.

However, review all wages to determine if this causes problems in other areas. It could cause salary compression, which happens when there is little or no pay difference between people in jobs that require different levels of skill, responsibility, supervision and/or education.

Although usually not deliberate, this leads to poor morale, difficulty in recruiting and quite possibly a bad reputation for the company.

3. Limit employees to 40 hours.

Perhaps it’s time to bring on a part-time employee to make up the difference and ensure the work load gets done?

4. Make them hourly employees and pay them the overtime.

If they weren’t already hourly, how will they track their hours, particularly if they are doing some work from home, like answering emails?

With this option you also have to consider how morale will be affected. Will they feel demoted? You will need to create a strategy to offset those feelings.

5. Lower employees’ hourly pay so that the overtime costs do not increase.

Ouch! We strongly do not recommend this option. Well, unless you want a bad reputation and an even harder time finding and keeping good employees.

Please remember that these comments should not be construed as legal advice or as pertaining to any specific factual situations. If you have questions or would like some more specific guidance for your organization on exempt employees and these changes, please call me at Alternative HR at 717-855-5589.

*-Unless they fall under the highly compensated employee classification or one of the few other exemptions (teachers, outside sales, IT professionals, etc.).

About Kellie Boysen – Owner, Alternative HR:

Kellie Boysen is a certified Professional in Human Resources (PHR) with more than a decade of HR experience. She owns Alternative HR, a local human resource consulting and outsourcing organization that is dedicated to providing small business owners with an affordable alternative to hiring a full-time HR professional.