The FLSA Overtime Changes and Their Impact on Employee Benefits
Most employers should be reviewing payroll budgets and job descriptions to ensure that changes to salaries and job classifications are all in order by the December 1 deadline based on the new overtime exempt salary threshold and other final rule changes to the Fair Labor Standards Act (FLSA). Another area that will be impacted by these changes and needs review now is employee benefits.
This is the best opportunity to review your company’s eligibility requirements for certain benefits and benefit levels. Some benefit plans may include eligibility requirements based on exempt versus nonexempt status or salary versus hourly status. With the FLSA changes soon approaching, and many companies preparing for their annual open enrollment periods, you may want to use these next few months to review your eligibility requirements and make any necessary changes. These classification changes may unintentionally cause a reduction or loss of certain benefits for some of your employees. Retirement Plans
Often, company contributions to retirement savings plans are based on an employee’s salary level. These contributions will increase as you raise salaries or incur additional overtime costs. The costs of short-term disability, long-term disability, and group life insurance plans are frequently based on an employee’s annual earnings; therefore, there may be an increase in these benefits costs as well. Review the eligibility requirements for health and welfare benefits and other fringe benefits offered by your company. Determine if any employees may be impacted and consider whether you will make any changes to those benefit plans.
Affordable Care Act
With regard to the Affordable Care Act (ACA), higher pay may increase the employee threshold for affordability if your company is using the rate of pay or W-2 safe harbor methods to determine health care affordability. Additionally, higher pay may reduce any government-provided health care subsidies that employees may currently be able to receive.
Your company’s tracking method for recording hours of service when reviewing your employees’ measurement and stability periods should also be reviewed. Some employers may use different methods for different classes of employees. A change in class for certain employees may impact their measurement and stability period for health care benefit eligibility.
Paid time off accruals, paid sick leave accruals, and workplace flexibility will all need to be addressed as you work through these changes. It is extremely important for you to be able to explain the changes to your employees and reinforce the fact that the new overtime law does not negate their importance to the company.
Managers should already be talking to employees about these changes and allowing employees to ask questions. Companies need to think about new ways of maintaining the same level of flexibility and autonomy that many of their exempt employees have enjoyed in the past. This may mean thinking of new and different ways of getting the work done that will provide a sense of empowerment and autonomy to the employees. Cross training, work sharing, and fine-tuning processes will allow better efficiencies enabling employees to accomplish more without the need for excessive work hours.
Employee engagement and morale issues are critical concerns as many currently exempt employees, particularly managers, will feel that they have lost their status and prestige. HR professionals and other senior leaders in the organization should be available to have open discussions with these employees to explain the new law and reinforce that this has nothing to do with their overall job performance or level of responsibility. For most, this does not mean a change in job duties; it merely means a change in the recording of hours and method of payment. When managed correctly, employees should not see a reduction in their wages. They should earn approximately the same as or more than their current salary, based on a wage increase, overtime earnings, or adjustment to a comparable hourly wage.
There is no argument that these changes will be significant for many employees. The continued FLSA minimum salary adjustments scheduled to occur every three years will create a new paradigm shift in how exempt and nonexempt employees are viewed. No longer can it be said that all managers are exempt employees, as many will continue to manage employees and also be eligible for overtime. Remember that you can pay your nonexempt employees a salary, but you also must have a method to record their hours worked and you must compensate them for overtime.
These changes are estimated to impact 4.2 million employees across the United States. How you communicate these changes to your employees will help tremendously in preserving a positive morale in your workplace.