Preparing for New Overtime Rules: 5 Ways an HCM Solution Can Help
By Jim O’Connell, Executive Consultant for Ceridian
Employers understand they must stay ahead of the curve of compliance change to manage what has become a huge cascade of government regulations. High on the list are FMLA, COBRA, FLSA, E-Verify and a host of federal, state and local employment tax rules. The Affordable Care Act Employer Shared Responsibility mandates may be the biggest challenge of all.
Staying ahead will be especially important with new FLSA overtime rules expected later this year. While it’s not known whether final rules will match what was proposed on June 30 or their exact 2016 effective date, dramatic change is coming to wage-hour law compliance. HCM solutions can help employers prepare.
U.S. Department of Labor (DOL) proposed rules
Most disruptive would be a doubling of the salary threshold for overtime pay eligibility from the present $23,660 per year ($455 a week) to $50,440 ($970 a week) in 2016. If final rules are pegged at $50,440, some 5 million workers who now earn between the old and new salary cut-offs would become entitled to overtime pay for hours worked in excess of 40 per week.
The proposed rules would also establish an escalator mechanism under which the overtime salary threshold would automatically increase every year. DOL could set the annual salary threshold at the 40th percentile of earnings of all full-time salaried employees. This would produce an exemption threshold of $970 per week or $50,440 in 2016, thus doubling the cutoff.
Under present regulations, workers who earn above the salary threshold can qualify as exempt from overtime pay if they also meet certain job duties tests—the “EAP” (for executive, administrative or professional) or “white collar” exemption.
While DOL had been expected not only to raise the salary threshold but to recast the duties tests to make it more difficult for above-threshold workers to qualify for an exemption, the proposed rules did not include new EAP duties tests.
Leveraging HCM technology to prepare for new overtime rules
Employers expect that the Obama Administration, committed to addressing income inequality and stagnation of median household earnings, won’t back off the principle that the current overtime regulatory regime is out of date.
To prepare for change, therefore, employers should assume that the Secretary of Labor will announce a final rule that will at least double the present salary threshold—i.e., to $47,320 in 2016. Employers should also assume some tinkering with the existing duties tests for overtime exemptions.
HCM can help employers take 5 essential steps to prepare for new overtime rules
1. Identify employees who are exempt and non-exempt
As soon as possible identify which employees and jobs have salaries somewhere in the gap between the current salary threshold of $23,660 and a new exemption level likely in the neighborhood of $47,320. When the new rules become effective most of these employees will be reclassified from exempt to non-exempt status.
A single HCM application can simplify the process of identifying the employees and jobs within the defined salary thresholds by generating the data analytics needed for full visibility and control of any organization’s labor model. This enables improved forecasting accuracy to anticipate changes to regulatory overtime requirements.
2. Put in place a process for reclassification
Put in place now a process to decide which of the employees now in the gap between old and new thresholds will be reclassified as non-exempt and which could receive a salary boost to remain exempt even at the new threshold.
HCM technology can help managers assign tasks to employees, evaluate employee productivity and update task completion metrics, providing real-time tracking of operational performance. This functionality could be particularly important if DOL tweaks the duties tests for overtime exempt executive, administrative or professional positions in the final regs.
3. Stay in compliance using time & attendance
Develop a policy/strategy to manage weekly hours of newly non-exempt employees to stay below 40 hours a week. Bear in mind that the new rules likely will require upwards of 5 million currently exempt workers to record their time-in and out, in other words “clock-in and clock-out,” for the first time in their careers.
Cloud-based HCM technology can help employers comply with step three by introducing time & attendance solutions for newly non-exempt employees that provide the tools needed to automate employee time tracking and streamline timesheet maintenance, including validating punches against schedules at the clock.
4. Take the guesswork out of labor planning
Determine in advance what scheduling or staffing changes might be necessary to manage newly non-exempt employees’ weekly hours. Employers will need to make decisions about whether to limit overtime hours, improve scheduling efficiency, shift some work to others or hire more people.
It’s worth noting that the purpose of the original 1938 Fair Labor Standards Act was to encourage employers to hire more workers by requiring time-and-a-half pay for overtime. That year unemployment spiked back up to almost 20%–one out of five U.S. workers unemployed—during what became known as the “Depression within a Depression.” No doubt President Obama, like President Franklin D. Roosevelt in 1938, hopes a doubling of the overtime salary threshold will similarly foster new jobs.
Here again a single-application for HCM can help employers by taking the guesswork out of labor planning and optimize schedule coverage based on actual operational targets. Real-time management of scheduling and staffing needs helps employers proactively align schedules with anticipated labor demand, facilitating the entire schedule planning process. This will be especially important for compliance with the new regulations as employers compare forecasted costs of higher overtime pay, increased staffing levels and the introduction of dynamic, traffic-based scheduling systems. A single application for HCM can also evaluate employee benefit considerations for newly reclassified employees.
5. Audit job descriptions
Finally, on the chance that DOL will modify existing EAP duties tests, employers should soon conduct a self-audit of job descriptions to make sure they are up to date and continue to qualify above-threshold employees for overtime-exempt status.
HCM systems allow employers to create and reformulate tasks and job and position details, and assign them to specific locations and employees. HCM systems also provide real-time updates and assist employers in developing new job descriptions, allowing managers to reflect job information that complies with revised FLSA duties tests.
Human Capital Management technology can assist employers of all sizes in meeting their regulatory compliance obligations. HCM is uniquely suited to helping employers prepare for new federal overtime regulations—by all accounts what could be the most sweeping change in wage-hour regulation since 1938.
With more than 30 years of experience in federal legislative and regulatory affairs, Jim O’Connell focuses on HR and PAYROLL POLICY ISSUES, keeping customers informed about fast-changing and complex compliance regulations and workforce trends. Follow him on Twitter @JOCWashDC.