As we’re well on our way through the fiscal year, we’re all busy maintaining payroll compliance standards that affect our companies right now. The last thing we want to think about is any payroll law changes that might affect our work in 2020. Even though we’re far away from ringing in the new year, the Fair Labor Standards Act (FLSA) already has 2020 in mind.
On March 7, the U.S. Labor Department proposed a solution that extends the number of workers who are eligible to receive overtime pay. If passed, this approach will make employees that earn less than $35,308 annually — or $679 a week — eligible for additional pay when they work overtime. Currently, the salary requirement for those eligible for overtime pay is $455 per week or less. Although updates to the overtime law have been discussed since 2016, it’s important that we stay up to date on this latest proposed action to make sure we’re already in compliance if this change does go into effect.
Employee Impact: The new overtime threshold is expected to impact 4.2 million employees. Right now, the average amount of hours for full-time employees in the U.S. is 42.5 a week, according to the U.S. Bureau of Labor Statistics. For those operating in agriculture and related industries on a full-time basis, the average weekly time spent working is 47.6 hours, even higher than the national average.
What do you, as a payroll professional, have to watch out for as a result of this change to the overtime law? Which of your processes will be affected? Don’t worry — we’ve got a quick explanation on the update for you, as well as some insight on where you should expect impacts.
All about the overtime update
This overtime addendum is part of a Notice of Proposed Rulemaking (NPRM) suggesting changes to the current FLSA standards. In addition to the overtime change proposal, other payroll-related policies that the U.S. Department of Labor included in the NPRM are:
● Increasing the total annual compensation requirement for "highly compensated employees" to $147,414 — at an increase from the current level of $ 125,000
● Committing to periodical salary review thresholds to verify if updates are necessary; changes to salary thresholds cannot be adjusted automatically
● No change in the duties test to determine if employees that earn more than the salary threshold are nonexempt from overtime
● No changes to the overtime protections for certain workers, including:
o Police officers
o Fire fighters
o Non-management production line laborers
o Employees in maintenance and construction fields, excluding managers
Whether or not this helps or harms your business's bottom line — or perhaps has no effect — it’s essential that you remain compliant with these potential alterations. There are plenty of ways this new overtime policy, if passed, might change your day-to-day functions.
Evaluating current employees
If the IRS takes this new policy into account, payroll professionals will need to make the time to look into each of their employees' pay grades to see how many of them are eligible. Depending on the results of this research, your organization might decide to provide salary increases to employees who can be considered exempt under the job duties test but just barely fail to meet the $35,308 salary minimum.
You’ll also need to look into the number of hours your staff is working to decide whether or not they are considered a non-exempt worker. If you find that a staff member is working overtime consistently but is spending this time performing non-specialized or administrative work, you might suggest that the employee's manager delegates this task to a different worker to cut company costs. If you have an HCM platform that automatically tracks things like employee hours, task types, and pay rates, you should be able to easily build some data visualizations to help answer these questions.
Keeping track of time
When your organization needs to track the number of hours employees work every week, you might decide to implement or update your timekeeping system. Hourly workers are more likely to adopt a system that is accessible and intuitive, resulting in more accurate hour tracking for all employees. Bonus points if you can build your timekeeping strategy as part of a wider HCM platform. That way, you’ll be able to automatically tie things like payroll calculations to the time rules you set up.
Staying accountable for telecommuters
This overtime rule includes remote workers as well as onsite employees. If your organization has a large population of employees working from home on a consistent basis, you may want to implement ways to monitor workers' hours more closely. It’s vital that your organization develops arrangements that can help accurately track telecommuters' hours. This might involve limiting the number of remote workers if the organization feels its employees are abusing their overtime rights or looking into better mobile access options so it’s easy for remote employees to be accurate with their hours.
Communicating the policy to all employees
Whether or not a majority of your staff is affected by this potential overtime policy, you should be transparent about how it will affect your payroll dynamics if it is implemented. Some employees that previously did not meet the non-exempt requirements may be eligible if their salaries lie between $23,661 and $35,307. Make sure all managers convey how this policy might affect workers' pay and tasks. A company-wide town hall meeting may be the best way to explain the new policy, but employees who are directly impacted should feel comfortable approaching payroll staff or their managers about any concerns or questions. Again, HCM technology can be a big help here since it will let you automate some of these communications or assign actions to employees if they need to change some of their information.
The present state of the new overtime policy
Fortunately, the policy will not be implemented until 2020, giving you plenty of time to strategize how to introduce this regulation to your employees and executive teams. It's important to note that this addendum will likely not change your business on a large scale. However, it will require those in human capital management and upper leadership to adjust to these changes, which may take some time.
We can expect a first draft of the 2020 W-4 form to be released by the end of May. At this time, the IRS will accept comments and suggestions, which they will implement in their second draft. In the meantime, just like with any other big regulatory change, it doesn’t hurt to do a quick review of your compliance best practices and make sure you’re standardizing and automating your approach so you can quickly adapt when the rules shift.