Money, get away
Get a good job with good pay and you're okay
– Pink Floyd
There’s nothing like a good job with good pay.
Congress realizes that, which is why there’s a lot of discussion about revising the Fair Labor Standards Act (FLSA). How will these changes impact your staffing plan and budget?
The FLSA is a federal law that was initially passed as New Deal legislation in 1938. This historic legislation banned oppressive child labor, established the legal workweek at 40 hours (before overtime), and introduced a national minimum wage.
Under the FLSA, employees are classified as “exempt” or “non-exempt” from overtime. In other words, exempt employees are salaried, and non-exempt employees are paid an hourly wage.
Over the last 15 years there have been many lawsuits (including some high profile class action suits) over misclassified employees. These suits are brought to recover overtime pay.
The Department of Labor (DOL) is proposing new rules for classifying employees as exempt (salaried) and non-exempt (hourly). The DOL is also actively investigating employers who misclassify contractors who really should be classified as employees. These types of investigations can result in exposure in benefits costs and back taxes for employers.
Every state has its own agency that governs state wage and hour laws. States are ramping up their own misclassification investigations since it drives revenue in the form of additional taxes and penalties. Additionally, 17 states have agreed to actively work with the DOL to share information about employee misclassifications.
Changes Are Coming
Changes to the FLSA aren’t final yet, but here’s a list of some items that are under consideration:
• It’s been proposed that if a salaried employee performs hourly work for 50% or more of the time, they should be classified as hourly. If you’re in California, you’re probably already familiar with this rule.
• Modifying the current administrative exemption by requiring more authority over employees, more employees to be supervised, and limits on performing the same work as subordinate employees.
• The definition of making a “sale” will likely be narrowed, and this will impact salespeople (commissioned and/or salaried).
• The current minimum weekly salary for an exempt employee is $455/week. This hasn’t changed under the FLSA since 1970. As with the hourly minimum wage, several states have thresholds that are significantly above the federal minimum. The most commonly discussed new figure for the FLSA is $800/week ($42,000/year), but some members of Congress have called for a $1,327/week ($69,000/year) requirement.
Impact on Staffing Plans and Budgets
These proposed regulations can complicate a business’ operations. Consider the impact to your staffing plan and budget:
• Do you need to hire permanent employees instead of contractors?
• Do you need to hire more hourly workers to avoid incurring overtime?
• Do you need a different mix of full-time/part-time employees?
• If you’re hiring more hourly employees, do you need more managers to supervise them?
• Do you currently have exempt employees in individual contributor roles that can be expanded to include a supervisory function?
• Is there a way to deploy technology to offset potential labor costs?
• Have you budgeted for potential increases to the minimum salary requirement?
• If you have a delivery team and you pay a commission, confirm that there’s truly a sales component to the position.
Employers: Get Ready Now
FLSA lawsuits rose by 8% last year and are at an all-time high. The DOL is doing more on-site investigations, and they have the right to talk to employees when they’re on site reviewing records. Remember, the DOL also enforces the FMLA and many of its investigators also have friends at the EEOC and Homeland Security (the US Immigration and Customs Enforcement Agency performs I-9 audits and investigations). You can avoid audits, investigations, and lawsuits by:
• Review job descriptions and make sure than an outside observer could understand the core functions and responsibilities. Don’t use a log of acronyms and jargon.
• Identify exempt positions that may be in the gray zone.
• Take a hard look at salaried employees who are paid less than $800/week. This should get you in the ballpark for potential minimum weekly salary thresholds.
• Have a plan to transition salaried employees to hourly roles. Make sure you clearly outline the role and responsibilities of the new job, and explain why the job is being reclassified. This involves a high degree of communication and strategy to avoid a wage and hour claim for back pay (overtime). Consult with an attorney before making any changes and to help with the overall communication strategy.
Use Your Friends
There are definitely a lot of changes coming, but the federal agencies aren’t the only ones with friends. Consult with your attorney, get the right human resources support, and don’t forget that HR Virtuoso is here to help with your hourly hiring needs.
Photo credit: Steven Depolo