Please note: while these rules were set to go into effect 12/1/2016, implementation is currently being postponed pending legal review.
The Department of Labor has released new regulations governing how salaries are handled under the Fair Labor Standards Act. They may affect how some employees are compensated in your co-op. In order to be paid on a salary basis, an employee’s position must not only pass the duties tests for executive or administrative exemptions from the overtime provisions of the FLSA; She or he must also be paid a minimum of $913 per week ($47,476 annually) with further adjustments over time.
To ensure compliance with the final rule, you should first ensure that all exempt employees meet the qualifications for exemptions. Next, review the salaries of all exempt employees. For those who are paid less than $47,476 per year, you will need to consider how increasing their salaries to keep them exempt from overtime compares to the cost of paying time-and-a-half for overtime hours worked.
There are other alternatives to consider. For example, you can reduce an affected staff person’s hourly base pay so that with overtime payments their annual salary remains unchanged. Other options include making changes to the organizational structure, splitting up job descriptions, or delegating non-managerial work to keep previously salaried staff from having to work overtime.
Lastly, determine how you will communicate the changes. Consider that some employees may feel they have been demoted. Be prepared to manage this disappointment.
Below are some questions and answers from the Department of Labor that may shed light on some common questions co-ops have around these regulations.
Q. Comp Time: Are comp time programs still allowed? That is, can any hours over 40 hours be banked to use later to either take time off or maybe get paid at end of year at straight time?
A. Only employers that are public agencies under the FLSA (e.g. a state government) can provide comp time in lieu of overtime premium payments.
Q. Does the FLSA allow for a flexible schedule for overtime eligible employees? Can employers still allow employees to work from home or have flexible schedules?
A. Yes. The FLSA does not require minimum or maximum hours for a shift, or prohibit split shifts. There is no requirement that a worker must have a predetermined schedule or restrictions on where the work is performed. There is also no restriction on when the work may be performed. See Fact Sheet 22: Hours Worked Under the FLSA.
Q. We have salaried professionals whom are not scheduled at any time to work more than 40 hours per week. Do we have to track hours each week to verify that or if the schedule doesn’t allow for more hours can we document their schedules and not have them do a time card?
A. If the salaried professionals are bona fide exempt employees as defined in 29 CFR Part 541.300, there is not a recordkeeping requirement. However, if the salaried professionals do not meet all the requirements for the exemption, including the salary level, there are recordkeeping requirements that can be found in 29 CFR Part 516, which would be applicable to them.
Furthermore, overtime-eligible workers are not required to punch a time clock. Employers have options for accounting for workers’ hours – some of which are very low cost and burden. There is no particular form or order of records required and employers may choose how to record hours worked for overtime-eligible employees. For example, where an employee works a fixed schedule that rarely varies, the employer may simply keep a record of the schedule and then indicate the changes to the schedule that the worker actually worked when the worker’s hours vary from the schedule (“exceptions reporting”). See Fact Sheet 21: Recordkeeping Requirements under the Fair Labor Standards Act (FLSA).
For employees with a flexible schedule, an employer does not need to require an employee to sign in each time she starts and stops work. The employer must keep an accurate record of the number of daily hours worked by the employee, not the specific start and end times. So an employer could allow an employee to just provide the total number of hours she worked each day, including the number of overtime hours, by the end of each pay period. The Department has material available to help employers figure out what method of recording hours works best for their workforce.
For example, an overtime eligible employee has a flexible schedule that does not require that the employee work particular hours but requires that she work at least 40 hours per week. In a particular week, the employee might leave early on Monday to go to her daughter’s soccer game, finish some work from home late Monday night, stay late on Tuesday and Wednesday to catch up on a priority project, leave on Thursday mid-afternoon to attend a gym class and then return to work. Her employer does not require her to “clock in or out” each time she comes to work or leaves. The employer must keep an accurate record of the number of daily hours worked by the employee. By the end of each pay period, the employee provides her employer with the total number of hours she worked each day, including the number of her overtime hours.
Q. Can bonuses be considered as part exempt employees’ compensation?
A. When the Final Rule takes effect on December 1, 2016, employers will newly be allowed to satisfy up to 10 percent of the standard salary level with nondiscretionary bonuses and incentive payments (including commissions). Nondiscretionary bonuses and incentive payments are forms of compensation promised to employees, for example, to induce them to work more efficiently or to remain with the company. By contrast, discretionary bonuses are those for which the decision to award the bonus and the payment amount is at the employer’s sole discretion and not in accordance with any preannounced standards.
Q. May employers make a catch-up payment in the event that an employee doesn’t receive enough in nondiscretionary bonuses and incentive payments (including commissions) in a given quarter to remain exempt?
A. Yes, if an employee does not earn enough in nondiscretionary bonuses and incentive payments (including commissions) in a given quarter to retain their exempt status the Department permits a “catch-up” payment at the end of the quarter. The employer has one pay period to make up for the shortfall (up to 10 percent of the standard salary level for the preceding 13 week period). Any such catch-up payment will count only toward the prior quarter’s salary amount and not toward the salary amount in the quarter in which it was paid. If the employer chooses not to make the catch-up payment, the employee would be entitled to overtime pay for any overtime hours worked during the quarter.
Q. Can an employer say that a holiday bonus is part of an employee’s salary in effort to meet the new standard?
A. An unannounced holiday bonus would qualify as a discretionary bonus, because the bonus is entirely at the discretion of the employer, and therefore could not satisfy any portion of the $913 standard salary level.
For more information, see https://www.dol.gov/whd/overtime/final2016/faq.htm#3 or https://www.dol.gov/whd/overtime/final2016/webinarfaq.htm