The Department of Labor has announced sweeping changes to overtime pay for salaried employees, and while those changes don’t go into effect until December 1, smart businesses are planning now for implementation.
The Fair Labor Standards Act, or FLSA, dramatically increases the salary benchmark below which salaried employees must be paid overtime. Currently, any employee earning more than $23,660 as an annual salary is not eligible for overtime pay; after the FLSA takes effect, that cut-off point goes up to $47,476. That figure will also rise over the next three years, making it even more important for companies to prepare before the law takes effect.
The FLSA is already changing the way many companies are doing business. Here are ways your organization might follow suit and prepare for change before it happens. You might find a combination of these makes sense for your company.
Many companies are ramping up salaries now to meet the annual salary threshold before December. By building a gradual increase into their budgets, these companies won’t have to absorb a large payroll increase next year. Spreading around more modest raises now also keeps valuable salaried employees with you instead of preparing their resumes for a job change later in the year. When talented employees know you value them enough to initiate raises now instead of waiting for government regulations to enforce change, they reward your organization with loyalty.
Converting to Hourly Wages
The FLSA applies to salaried workers, not those who are compensated hourly, so for many companies, the solution is to convert salaried workers to hourly pay. For example, if a salaried employee currently earning $32,000 annually is converted to hourly wages of $15.30 an hour, his or her impact on overall payroll remains roughly the same, but that employee is removed from the pool of those affected by FLSA changes.
When converting, consider the amount of time your organization expects of salaried workers in a week. If employees currently work only a small number of hours past 40, or if they work overtime only sporadically, an hourly wage and overtime pay may be the most economical solution. If these employees are mainstays of your organization who work significant overtime hours every week, keeping them on salary and raising their income to or above the threshold is probably best for your organization and its most valuable workers.
Splitting Job Duties
By splitting a single role into two, allocating one portion to an hourly worker and one to your salaried employee, you get the same coverage you currently have with a single salaried worker without the high cost of overtime pay. If your organization typically hires salaried personnel to work longer weekly hours, this may be your best solution, particularly if your job market contains many talented entry-level workers.
One concern with doubling up on workers in some jobs is compensation. Here’s where your experience with compensation for part-time and full-time workers comes to the fore. Is it more economical to take on the expense of another full-time employee’s benefits in exchange for the greater contribution your new hire will make to the company, or does it make more sense to hire part-time workers whose contributions are more modest? Drawing up cost-benefit analyses to help your company’s executives make the right choices here is paramount.
For companies working with tighter payroll budgets, difficult choices may lie ahead. It may not be possible to keep staff levels at their current point; some personnel may need to be let go and not replaced. In some organizations, this option could have a hidden silver lining, enforcing greater efficiency and making them pare down to a leaner, more agile size.
Renegotiating compensation, reallocating salaried employees to hourly positions, and recruiting new personnel will present HR directors with plenty of challenges as the FLSA deadline approaches, but with proactive changes, your company can be ready for the shift.