(h/t to my colleague, Fran Dwornik, for her informative presentation on this issue.)
Enacted in 1938 in response to the Great Depression, the Fair Labor Standards Act (“FLSA” or the “Act”) regulates Federal minimum wage, overtime and child labor standards. All employees are covered unless they are deemed to be exempt (i.e., certain executives, administrative, professional, outside sales, computer specialists and highly compensated employees as defined within the Act). To be exempt, certain requirements must be met that look at the basis for the salary paid, salary level (currently $23,660 per year) and the duties of the employee.
Effective with the pay period including December 1, 2016, the new FLSA regulations will increase the salary level to $47,476 per year, which will then be updated every 3 years beginning January 1, 2020. This means that as an employer, if your employee is salaried and not earning $47,476 annually, then either the salary will have to be increased to the new minimum to continue to classify the employee as exempt or the employee will need to be switched to hourly pay and you will have to track hours and pay overtime as appropriate. There are quarterly catch-up payments that can be made to cure an issue, but you first have to recognize that an issue exists.
Also changing on December 1, 2016 is that the salary threshold to classify an employee as a ‘highly compensated employee’ will increase from $100,000 per year to $134,000 per year, provided the employee performs at least one exempt duty. This threshold will also increase every 3 years beginning on January 1, 2020.
What does this mean for business owners and employers. First, employers who are subject to FLSA need to review and analyze their employee records and salaries to determine who will be exempt and who will not be exempt under the new regulations. Next, employers will have to make some decisions regarding whether to convert currently salaried employees to hourly employees or increase the base salary to the new minimum to maintain exempt status. If the employer converts employees to hourly pay, this may mean that employees will lose some level of flexibility in their day-to-day jobs as hours will now be tracked. For example, working from home may no longer be an option for a once salaried employee who now is paid hourly as an employer may want to be able to visibly track hours and time in the office. If the employer increases base salaries to the new minimum, this may result in an overall reduction of other benefits to cover the increased salary. More part-time jobs may be developed by employers where there are middle management exempt employees who will no longer be exempt (e.g., retail and restaurant industries).
Ultimately, the impact of the new regulations is not yet fully determined. However, if your are an employer subject to FLSA, then you should review your records and sit down with your professional advisor to ensure you are or will be in compliance with the new regulations. #businessplanning #FLSA #newregulations @bgnthebgn