2016 is quickly coming to an end.
As you start to make holiday plans with your friends, family members and colleagues, be sure to put a big red circle around a very important date on your calendar: December 1, 2016.
This is the date that the Fair Labor Standards Act Final Rule takes effect. Once this happens, the “standard” salary level will more than double. It will increase from $455 per week for full-time salaried employees to $913 per week or $47,476 annually. In addition, the new exemption for highly compensated employees will increase to $134,004 per annum, up from $100,000. These levels will update every three years, beginning on January 1, 2020, in order to maintain the earnings percentiles laid out under the Final Rule.
Aside from potential increases in wage expenses, it is also important to prepare for potential costs associated with technology, people, operations, and change management. Here are some tips to help you get started:-
TIP 1: Determine appropriate staffing levels for your business to avoid increasing overtime costs, while ensuring business continuity.
The Department of Labor (DOL) lists several options for businesses under the rule change:
- Pay time-and-a-half for overtime.
- Increase workers’ salaries above the threshold to avoid incurring overtime.
- Limit employees’ hours to 40 hours per week.
- A combination of the above.
In addition, the DOL also permits the usage of non-discretionary bonuses to offset the expenses associated with the rollout of the new laws. Please see our previous blog post which gives further information about bonuses and the new FLSA.
Before implementing changes in staffing levels and changing the statuses of current employees, it is important to sit with your leadership team to determine how each option will impact business operations. For key employees / roles, how will a switch to hourly wages impact operations? You might be saving big on wages but your operations could suffer if these changes result in operating breaks — think potential lost revenues and even negative customer reviews.
TIP 2: Implement automated time tracking.
With the new changes, some workers will be reclassified from exempt to nonexempt (hourly workers) which will now necessitate the implementation of time tracking systems and tools. Many businesses might not have a formal system for tracking or if they do, the system might be manual. If employees estimate the times when they begin and end work, it can result in overpaid wages which can add up over time.
The same concept applies to lunch hours and breaks. By implementing a time tracking system, you will be able closely monitor staff productivity and ensure your team is receiving a fair wage for the work they produce.
There are many low cost computerized time tracking tools that can potentially save you thousands in overpaid wages and consequently payroll taxes. Time tracking tools could also help your business keep tighter controls on staff scheduling to avoid the cost of overstaffing and unnecessary overtime.
Whichever system you select, it is important to offer training to your team in terms of accurately tracking their hours and productivity.
TIP 3: Outsource non-core functions like payroll.
While you can consider hiring more part-time employees or contractors to avoid paying overtime to your current team, outsourcing may be an even more beneficial option for your business. In particular, with the changes to overtime rules, payroll could become more tricky than ever.
If you are struggling with payroll to begin with — spending considerable time computing employee wages, printing reports and manually writing checks — then outsourcing can save you time and money. Outsourcing payroll transfers these tasks to a team of experts, freeing up time to focus on your core business. By choosing an outsourced bookkeeper like Remote Quality Bookkeeping™ you can ensure accuracy, timeliness and compliance and avoid the potential for an IRS tax audit. For more information on why accountants recommend outsourcing payroll, see our previous blog post.
TIP 4: Prohibit unauthorized overtime.
It may sound strict, but it just might become necessary, especially if you have a large number of employees who are being reclassified to hourly workers. It is likely that previously exempt employees worked “overtime” without realizing it or recording it (since they did not track hours in the past). You might consider disallowing unauthorized overtime and requiring employees to seek manager approval if they need to work overtime on a particular day. It is important to note that employers will still be required to pay overtime if employees do not adhere to this rule but they can enforce disciplinary action as a consequence. Whichever policy you implement, clear communication and training will be key.
TIP 5: Invest in training to show employees your commitment.
The new rule change could potentially impact your staff retention rates, if you don’t plan carefully. Workers who have been reclassified from salaried to nonexempt (hourly) may feel as though they’ve been “demoted” in a sense and this can significantly affect employee morale. As an employer, you should clearly communicate that any reclassification is not an indication of the employee’s performance but that it is a requirement based on the new law.
You might also need to train your team leaders on how to manage nonexempt staff if they have not previously had to do so. Ensure that employees feel comfortable speaking with you about the changes.
You could also consider setting aside a small budget for an employee retreat or implement other measures to make the workplace more comfortable and show your appreciation to your team for their commitment. Small investments such offering a birthday club could go a long way in boosting morale and encouraging your team. See our previous blog post on creating your ideal work environment for more tips.
The overall idea is preparedness. RQB keeps tabs on ever-changing tax and labor laws to ensure that our clients have time to implement any requirements and remain compliant. Please do not hesitate to contact us if there is any way we can assist you.