Goodness gracious. Every time I think regulations affecting small businesses can’t get any more onerous, I’m proven wrong.
From the ACA to state and local regulations that place a disproportionate (IMO) burden on employers to prove their compliance with the law, it seems to be getting more and more arduous to run a small business.
Enter the FLSA. Let’s start at the beginning.
The Fair Labor Standards Act outlines regulations for employees, including minimum wage, overtime pay, recordkeeping, and age restrictions. While the minimum wage war is being, well, waged, the FLSA handed down new overtime regulations that go into effect December 1, 2016.
Under the FLSA, employees are categorized as “exempt” or “non-exempt”. Generally speaking, the FLSA requires that most employees be paid the minimum wage and time and a half for hours worked in excess of 40 hours per week. Non-exempt employees are entitled to overtime pay. Exempt employees are not entitled to overtime pay. (I swear, they could have come up with more intuitive terms.)
Whether an employee is exempt depends on a few factors:
- How much they’re paid,
- Whether they’re paid a salary, and
- What kinds of job duties they perform (administrative, executive, or professional duties at least half the time).
Historically, salaried employees paid less than $23,600 per year were non-exempt, meaning, again, that their employers had to track their time and pay overtime.
Effective December 1, that threshold will be more than doubled. In other words, employees earning an annual salary of $47,476 who perform those types of duties will be entitled to overtime. This will impact more than 4 million employees, including those of nonprofit corporations.
Employers have a couple of choices here. Either pay qualifying employees more than $47,476 per year or begin tracking time for employees who fall under the threshold and meet the three-part test. Either way, these new regulations have some profound implications for small business owners and employees of small businesses.
“Simply” increasing salaries to avoid the regulations is beyond easier said than done. That salary level is nothing to sneeze at, and, especially in certain parts of the country, would be a substantial salary for someone performing administrative tasks. Raising salaries may be impossible for many businesses, particularly nonprofits that rely on donations to stay afloat.
Employers who aren’t in the position to “simply” increase salaries may instead reduce hours to ensure employees remain under the 40-hour threshold, but still have to implement policies to track and compensate ALL non-exempt employee hours. This isn’t so simple either. Employers will have to reconsider sending employees on business trips because all time considered devoted to the employer will have to be tracked and compensated. Employers may have to reconsider using virtual staff, or allowing employees to telecommute, because of the difficulty of tracking employee hours when they don’t report to a physical location. On the other side, employees previously enjoying the flexibility of working remotely at night or over the weekend to make up for hours missed during the week may be prohibited from doing so where it’s difficult to prove weekend work isn’t overtime, especially where employers lack an accurate mechanism for tracking that time. Employees are also likely to feel demoted, as not having to punch a clock is commonly a mark of career advancement. Oh, and no employee can waive his right to overtime pay, nor can an employee work “off the clock” without the employer needing to track and compensate that time.
What’s worse is that these regulations take effect December 1, 2016. There won’t be a grace period, nor will employers have more than a few months to revamp their procedures to comply.
Plaintiffs’ attorneys will have a field day going after employers who are in violation of the regulation, helped by none other than the DOL that so generously created a mobile app for employees to use to track time, which very prominently features a button for employees to use to report employers.
Whatever you decide to do as an employer, make sure it’s well documented, in employment agreements, handbooks, and in time sheets that are acknowledged by your employees on a regular basis. Here, again, is another instance in which documentation is key to defending yourself against a claim of noncompliance.
UPDATE: On September 20, 2016, State of Nevada Attorney General Adam Laxalt filed a lawsuit in the US District Court for the Eastern District of Texas, joined by 20 other states, to block the implementation of this change. That court was chosen for its reputation as a “rocket docket”, meaning it is known for processing cases quickly. Given the implementation deadline looms only weeks away, let’s hope this comes to a speedy resolution.
UPDATE: On November 22, 2016, because the plaintiffs were able to show “irreparable harm”, the judge presiding over the case granted a preliminary injunction, delaying the December 1 deadline for enforcement of the new rules. This doesn’t mean the expansion is dead in the water, but it’s been blocked for now. Stay tuned!