June 2016

Communicating and implementing FLSA changes

By now, most districts have identified employees who will be impacted by the new FLSA salary threshold rules. As outlined in the article, Implementing the Revised Fair Labor Standard Act Rules, that appeared in the recent special edition of the HR Exchange, districts have two options to address these employees—raise the salary to meet the $913 per week threshold or change the employees’ FLSA status to nonexempt.
 
Confirm position meets the duties test
 
Before moving forward to consider the options, it is a good idea to ensure that jobs currently classified as exempt still meet the duties criteria of the executive, administrative, professional, or computer employee exemption test. If the job doesn’t meet the duties test, the salary threshold is irrelevant and the job should be reclassified as nonexempt. Jobs often misclassified include first-line supervisors, administrative assistants, payroll staff, and buyers.
 
If the job meets the duties test, one of the options below must be applied.
 
Option 1—raise the salary
 
There are four issues to consider before raising an individual’s salary. First, can the district afford it? If an employee earns close to the $913 per week, it probably would not cost much to increase base pay. It may be helpful to compare the cost of raising base pay against the estimated cost of overtime to determine which would be most cost-effective.
 
For those who make considerably less than the minimum, including part-time professionals (e.g., physical or occupational therapists), a large increase may not be practical.
 
Second, the district must determine the effective date of the increase. Any change must be done by December 1, 2016. Many employers are making the increase effective for the first payroll where December 1 falls. Another option is to set the effective date as the first day of an employee’s contract or the start of the fiscal year. The impact of each date on the district’s budget should be considered.
 
The next question to consider is whether increasing an individual’s salary will cause pay compression. Compression is when there is little or no difference in pay between employees with different levels of skills or experience. If compression is an issue, consider the issue of affordability—can the district afford to increase the pay of other employees to manage compression?
 
Be aware that increasing a contract employee’s salary mid-year may require the board to conduct a public hearing. A hearing may be unnecessary if the district’s pay plan provides for an increase. More information about this requirement can be found in TASB School Law eSource.
 
Option 2—change the status to nonexempt
 
Treating the impacted employees as nonexempt means they:
 
  • Must be paid for all hours worked—this includes checking e-mail, working at home, staying late, and coming in on weekends and holidays
  • Must be paid at least minimum wage when their salary is translated to an hourly rate
  • Are subject to FLSA timekeeping requirements and must maintain weekly time sheets that accurately reflect actual hours worked; time clocks and electronic records are not required, but it is up to the district to ensure that accurate records of all hours worked are kept
  • Must receive an overtime premium for any hours worked over 40 in a seven-day workweek in the form of pay or compensatory time

As part of your budget planning, it is important to estimate the cost of overtime going forward. HR should work with the supervisor and the employee to estimate the amount of overtime that will be incurred. Time spent checking mail, working during a holiday, completing paperwork, and responding to e-mail after hours must be included.

Consider other possibilities

Districts have other options, but once again, the costs must be weighed against budgeting for overtime. First, determine if it is practical to limit the work schedule of an employee who becomes nonexempt to 40 hours. This requires analyzing work flow, processes, and staffing levels to determine if the work can be done more efficiently or whether duties and assignments need to be reorganized. Investing in software and automated systems may also help in reducing the number of work hours required.

Another possibility is to hire additional staff. It may be less expensive to hire a part-time worker or someone at a lower pay rate who can handle more routine work than to pay overtime. If you consider hiring additional staff, be sure to look at the total compensation package and factor in the cost of benefits.

There is a third possibility for at-will employees—lower base wages to take overtime into account. For example, if an employee typically works 42 hours per week, his or her regular annual salary could be reduced. However, with the two hours of overtime, the amount earned would remain the same. In this scenario, the employee may make the same or potentially more money because overtime regularly occurs.

And finally, consider the possibility that the change in exemption may result in two employees in the same job being classified differently. For example, a new hire with no experience is paid less than $913 per week and classified as nonexempt while an experienced employee with the same duties is paid at or above the threshold and is exempt. You don’t have to change the job’s pay grade assignment. However, you will need to decide if just the nonexempt employee or both of them will keep time records. You also will want to consider possible morale issues resulting from this (e.g., hourly employee is sent home to avoid overtime, while the exempt employee must work beyond the regular schedule to complete the work).

Communication is the key to success

The most important factor to making a smooth transition is to communicate changes in a clear and effective way. Plan ahead and start talking to employees and supervisors about the changes as soon as possible using the following tips:

Managers
  • Outline their responsibility for monitoring employee work hours and ensuring accurate timekeeping.
  • Remind them that they are accountable for controlling and approving overtime.
  • Point out that overtime costs will be charged to their budget.
  • Ensure the HR administrator conducts the initial discussion and addresses any questions that follow.
Employees
  • Plan for individual conversations with employees who are impacted. Only address employees as a group if the change applies to multiple individuals in the same position.
  • Include the supervisor in the initial meeting.
  • Stress that the change is because of a change in federal law and not a reflection of the employee’s performance or value to the district.
  • Identify job changes, if any, restrictions for working after hours and off the clock, and timekeeping requirements.
  • Ensure the employees understand they will need permission to work overtime or to take work home.

It also is important to start working with payroll as soon as possible so they can plan for the transition and determine if any programming changes are needed. Describe the scope of the changes including the number of employees affected and other issues that may arise (e.g., employees in same job may be exempt and nonexempt).

And finally, provide an overview of the upcoming changes to the board. Key points to communicate include the number of employees impacted, potential cost increase if any, and that the change is a result of federal law.

Other resources

Sample notices for communicating changes to supervisors and employees are available to our members in the Compensation and Benefits section of the HR Library. Two recorded webinars that provide detailed information on the new FLSA changes are available to HR Services members. Registration is free and can be accessed on the HR Services webinar page. Please contact us if you have any questions.