The Department of Labor has made some significant changes to how employees are classified and compensated for overtime purposes. These changes take effect on December 1, 2016, and if violated will cost an employer a significant amount of money. Atlanta attorney, John Herbert, has agreed to share expert advice on how to avoid legal troubles with the FLSA overtime changes.
John is the Managing Partner of The Herbert Legal Group and has been practicing business law in the Atlanta Georgia area since 1994. The Herbert Legal Group specializes in small and medium sized businesses both domestically and internationally.
SCOTT BROWN: John, you’ve spent the last several months giving presentations to groups across the state on the FLSA overtime changes. I attended one and found it highly informative if not startling. Thank you for taking the time to answer a few questions for those who might not have been able to benefit from hearing one of the many presentations that you have given across the state.
With the deadline right around the corner can you give us a little background on how the FLSA Overtime changes came about?
JOHN HERBERT: These issues go back to 1938 when Federal Labor Standards Act was first created to address minimum wage, child labor, record keeping and overtime. As far as overtime minimum salary standards, these have not been addressed since 2004.
So if the overtime rule hasn’t really had a change in so long, what are the key things that are changing on 12/1/16?
JOHN HERBERT: The salary-level test used for classifying employees as either exempt (from overtime) or non-exempt is increasing from $23,660 per year to $47,476 and will have an automatic increase every three years based on the 40th percentile in the census region with the lowest median salary, which is currently the South region.
Does this include only salary or are other forms of compensation included such as commissions and bonuses?
JOHN HERBERT: Non-discretionary bonuses up to 10% can be included in the new minimum. So if you have an employee who earns $42,729 per year and is eligible for a 10% non-discretionary bonus, then he or she would meet the threshold requirement. However, that bonus must be paid out on a quarterly basis.
I recall that it’s not as easy as checking if the compensation is above or below the threshold, aren’t there other considerations that an employer needs to include?
JOHN HERBERT: Yes, it’s a little more complicated than that and includes a 3-part test. The first step is to determine whether the employee is paid a salary versus hourly. If so, the employer must then pay at least $47,476 ($913 per week) in order not to pay overtime. If the employer pays more than that amount, the employer must still employ the duties test. The main four categories in that test are whether an employee is a manager, an administrator, a professional or an outside sales employee. Each requires careful analysis and there are some more specialized categories such as computer professionals and highly-compensated employees.
SCOTT BROWN: I can see that there is some equilibrium point for each employee where there is a best way to compensate them given how many hours they work.
Do you have any strategies that you could recommend for employers for how to classify or compensate employees?
JOHN HERBERT: There are four strategies. An employer can adjust hourly wages to account for average overtime worked, pay the overtime as required, cut back hours of certain employees working overtime or give raises to bring salaries above $47,476. We do have a handy calculator that helps analyze these situations that we are happy to share with your esteemed readers.
SCOTT BROWN: John, thanks so much. Labor law is always a bit intimidating but I think it’s certainly better to act proactively. I would rather meet with you to plan ahead than to have to get you to help me out if I get in trouble.
Do you have any final pieces of advice for managing employee time that you could share?
JOHN HERBERT: Make sure to track all time, this includes the use of phones and computers during non-work hours and be careful because the penalties are stiff. Please feel free to contact me with any questions. We offer flat fee proposals (off the clock) and are available to analyze any particular situation.
SCOTT BROWN: John, thank you once again for taking the time and also thank you for sharing your DOL calculator which an employer can use to quickly evaluate and manage their employees’ compensation.
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