fair labor standards act

The Fair Labor Standards Act may change but is your business ready for it? The United States Department of Labor proposed on March 7th, 2019 that it would change the Fair Labor Standards Act to include more than one million workers to be eligible for overtime pay. Do you know what the Fair Labor Standards Act is? Have you prepared for the changes?

What is the Fair Labor Standards Act?

In 1938, the United States Department of Labor introduced the Fair Labor Standards Act. This act regulates overtime, minimum wage, equal pay, child labor and record keeping. The Fair Labor Standards Act created the employment standards we know today, including 40 hours work week, minimum wage and overtime pay. In addition to creating employment standards, This Act also introduced child labor laws to stop oppressive child labor. This meant that children under the age of eighteen could not work in certain dangerous workplaces. Also, children under the age of sixteen could not work in mining, manufacturing and during school hours. President Roosevelt stated that the Fair Labor Standards Act is the most important piece of legislation since the Social Security Act to be passed.

Exempt and Non-Exempt Employees

The Department of Labor and state agencies determine whether employees can receive overtime and minimum pay. Employers are required to classify their employees as exempt or non-exempt at the time of hire. If an employee meets all the qualifications and the employer classifies them as exempt, the employee will not qualify for minimum wage or overtime. On the other hand, if a non-exempt employee works more than 40 hours in a workweek, they will be paid time and a half for any extra hours. Currently, the minimum salary threshold for an employee to classify as exempt is $455 per week, approximately $23,660 annually.

Potential Changes in the Fair Labor Standards Act

Under the new proposed amendment to the Fair Labor Standards Act, the minimum salary threshold for qualify for being exempt is $679 per week, approximately $35,308 annually. This is a $224 weekly increase in salary for the minimum salary threshold. Workers that are paid between $23,660 and $35,308 annually now qualify for overtime pay. It is widely known that the minimum needed to be raised due to the increased cost of living and inflation. Another proposed change in the Act is the increase in the annual minimum compensation for highly compensated employees. In the event that the amendment passes, the minimum compensation would increase from $100,000 to $147,414. Both of these changes are set to become effective in January 2020.

How Did the Department of Labor Set These Numbers?

$679 is not some arbitrary number the Department of Labor came up with. They used the same method in creating the current minimum salary threshold of $455. The Department of Labor used the 20th percentile of earnings of full-time workers in the lowest-wage census region and in the retail sector. The Department of Labor obtained the dollar figure $147,414 by using the 90th percentile of full-time salary workers nationally.

When Does This Amendment Not Affect You?

The minimum salary threshold we have talked about so far is the federal minimum salary threshold. There are some states, such as New York that have a higher minimum salary than the proposed federal minimum salary threshold. If your state has a higher minimum salary threshold, then this amendment does not override your overtime exemption laws. In New York, a salaried worker must be paid between $832-$1125 per week depending on the size of the employer to be exempt from overtime laws. The minimum salary threshold would defer to the state’s threshold instead of the federal one.

How Can You Prepare Your Business?

First, read over the proposal by the Department of Labor and familiarize yourself with it. Learn about what the new rules are for classifying employees as exempt or non-exempt. Iron out any of the ambiguity in job descriptions or salary amounts. Review all your employee’s job descriptions to make sure your company is complying with FSLA’s new proposed changes.

One alternative is to hire more employees. Whether it be part time or full time, having more employees will decrease the potential of overtime in your business. Whether it be shorter shifts or delegating out duties to more people, overtime will go down. Your business would need to run a cost analysis to see if hiring extra employees would be an economically smart decision.

Obtaining a workforce management software or a scheduling software can potentially save your business a large amount of money. (If you do not know what workforce management is, you can learn about it here!) Manually making schedules is time consuming and errors can lead to hundreds if not thousands of dollars in overtime pay. Having a system that is up to date with the proposed FSLA amendments can warn your schedulers when an employee is about to incur overtime. Also, with the new proposed changes to the Fair Labor Standards Act, integrating your scheduling software with your payroll software can be very beneficial. With your employee’s hours worked linked with your payroll software, all the data is automatically computed with no errors. Reduce the potential for errors with an investment into an automated solution.

Conclusions About the Fair Labor Standards Act

The new changes set out by the Department of Labor was foreseen by many employers in the business world. This change does not come as a surprise for most businesses. As an employer, you must have a thorough understanding of the Fair Labor Standards Act to comply with all the new laws. One mistake could cost your business a considerable amount of money in overtime wages. You can find the Department of Labor’s report here to go more into depth about the changes to the Fair Labor Standards Act. The Department of Labor also provides great resources on their website to help employers classy workers correctly.