Decoding the Possible Fair Labor Standards Act Changes

For most of July, many Human Resource professionals have been discussing the recent proposed changes to the Fair Labor Standards Act regulations. Some aren’t aware of the possible impact the new proposals could have on their organizations.  Considering the Department of Labor (DOL) projects that if enacted, this adjustment could impact roughly 4.7 million workers, the proposed changes should be reviewed. In this issue of Astronology we look into these potential changes to the FLSA and what they mean to you.

What is the Purpose of the FLSA?

                  

The Fair Labor Standards Act (FLSA) is the federal government’s primary means to establish minimum wage, overtime pay, recordkeeping, and youth employment standards for the private sector and federal, state, & local government employers. Currently, the standards, in summary format, are as follows:

• Minimum wage: Federal minimum wage is set at $7.25.
• Overtime: Employees classified as “non-exempt” through the FLSA exemption test process must receive overtime pay at a rate of not less than 1.5 times their regular rate of pay. Overtime is paid if the non-exempt employee works over 40 hours per workweek.
• Hours Worked: The hours worked ordinarily, including time spent on the employer’s premises, on duty, or at a prescribed workplace.
• Recordkeeping: Part of the standards for recordkeeping include displaying an official poster outlining the requirements of the FLSA, as well as keeping records of employee time worked and pay.
• Child Labor: Designed to provide protection to educational opportunities of minors, and prohibit minors’ employment conditions that could be detrimental to their health and well-being.

The proposed adjustments affect the minimum wage and overtime regulations.

What are the Proposed Changes?

                  

First, the proposal seeks to raise the minimum salary level used to identify exempt white collar employees. Instead of setting a salary amount, the FLSA proposal would set the minimum salary level equal to the 40^th percentile of weekly earnings of full-time salaried workers, based on data released from the Bureau of Labor Statistics (BLS). It is projected that in 2016, the year the proposal would be in effect, this level will be $970 per week ($50,440 per year). The salary and compensation levels would be indexed to this BLS data and updated annually, which would eliminate the need to make further adjustments in the future.

                  

The Highly Compensated Employees (HCE) exemption would also be revised. The National Law Review online mentions that currently the exemption applies to employees who earn a total annual compensation of $100,000 or more, and “customarily and regularly” complete the duties of exempt employees or have responsibilities similar to that of an executive, administrative, or professional employee. The DOL seeks to initially raise the current threshold of $100,000 to $122,148 per year.

Am I Affected By These Possible Changes?

                  

If you haven’t done a classification audit recently, perhaps. The National Law Review projects “The DOL’s proposed changes will likely only trigger more activity by private litigants and federal & state agencies.” They suggest to organizations that haven’t conducted a classification audit in some time to consider doing the following:

1. Evaluate the classification status of workers carefully at the outset of the work relationship, to determine whether a worker is exempt or overtime eligible.
2. If you inherit a large number of exempt employees, such as following an acquisition or a merger, perform due diligence to determine if there is potential for misclassification liability.
3. Conduct a privileged audit of your exempt employees and positions to determine what portions of your workforce will be affected by the proposed new rules. For example, assuming that the DOL’s projections are accurate, employers should be prepared to increase the salaries of exempt workers who earn less than $50,400 per year, to reclassify those individuals to overtime eligible, or to take other measures to address the increased costs.

Also, keep in mind we are currently within the 60-day public comment period. The DOL is required to review and respond to all issues raised by comment.  JD Supra Business Advisor online comments:

• What, if any, changes should be made to the duties tests?

• Should employees be required to spend a minimum amount of time performing work that is their primary duty in order to qualify for exemption? If so, what should that minimum amount be?

• Should the Department look to the State of California’s law, requiring that 50 percent of an employee’s time be spent exclusively on work that is the employee’s primary duty, as a model? Is some other threshold that is less than 50 percent of an employee’s time worked a better indicator of the realities of the workplace today?

• Does the single standard duties test for each exemption category appropriately distinguish between exempt and non-exempt employees? Should the Department reconsider the decision to eliminate the long/short duties tests structure?

• Is the concurrent duties regulation for executive employees, allowing the performance of both exempt and non-exempt duties concurrently, working appropriately, or does it need to be modified to avoid sweeping non-exempt employees into the exemption? Alternatively, should there be a limitation on the amount of non-exempt work? To what extent are exempt lower-level executive employees performing non-exempt work?

“Most importantly, during this period, in addition to comments on the salary level proposal, the Department of Labor’s Wage & Hour Division (WHD) also seeks comments on the following questions:It is important to note that the Federal Wage and Hour Commission has taken on an activist role when it comes to enforcement of FLSA regulations. According to Littler, “Wage and hour disputes have become the most common source of substantial, employment-related liability facing employers today. The number of class and collective actions has soared due to plaintiff-friendly laws, mounting government enforcement efforts and the increasing amount of information available to employees.”   As such, the Astron Solutions team urges all to remain vigilant with respect to both how jobs are classified and in how regulations are followed.

Astronology readers! Are you considering the possible effects the new proposal could have on your organization? You can voice your concerns to the WHD electronic through the Federal E-rulemaking Portal at http://www.regulations.gov.

CEO Pay Controversy

In the last few months, there’s been a lot of conversation on executive pay. CNBC news reported that in 2014, “the average S&P 500 company CEO made 373 times the salary of the average production and non-supervisory worker in 2014.” This is an increase from the 331 times the salary average in 2013. Why the sharp increase? What about the recent news of Unilever CEO Paul Polman’s reaction to his own salary? Astronology takes a brief look into executive pay.

                  

According to the aforementioned CNBC report, a survey by the Hay Group in 2013 found that 37% of CEO pay was in cash, while the percentage paid in stock and stock options was 54%. It was also discovered that a number of companies added the stock option to CEO packages after the 2008 financial crisis. The thought behind this move was that since stocks were low, “giving execs equity was likely to make them richer in the longer term.” Considering that CEO pay is typically not tied as much to performance but more so the size of the company, it’s easier to see that the combination of these factors may be part of why CEO pay has gotten so high.

                  

Paul Polman, the current CEO of Unilever, revealed recently to the Washington Post that he was “ashamed about the amount of money” he earns. In general, Polman is considered “a global business leader with a conscience.” The CEO of Gravity Payments took this concept a step further.  He announced in April of this year that he would be raising the company’s minimum wage to $70,000. This is a $22,000 per year increase for its 120 workers. How does he plan to make this work? By reducing his $1 million annual salary to the company’s new minimum wage of $70,000. Forbes.com mentioned that the company will also have to allocate roughly 75 to 80% of its annual $2.3 million profits to further the minimum wage change.

                  

Currently, there has been robust debate on whether implementing some form of pay for performance in executive pay could help with at least justifying executive pay levels. One particular aspect is the SEC’s proposed mandated “compensation actually paid” (CAP). This mandate would require more disclosure of executive pay, including more transparency to the company. However, some feel like this mandate will only give a “hazy” link to pay for performance. This means the search is still on to find a way to understand and regulate executive pay.

Has your organization been faced with dealing with repercussions from high executive pay? Are you searching to find a way to link executive pay to performance? Write to Astronology, and tell us what your attempts have been, or if your organization has found some sort of solution.  We look forward to hearing from you!

Harnessing the Power of Flare®

In a previous Astronology, we explored the basics of a Human Resource Information System, or HRIS. As we mentioned in that article, such technology can be beneficial in assisting with HR administration. It is also an effective tool for boosting efficiency & productivity, and removing physical paperwork off one’s desk.  In this Astronology article, we give you a closer look at Astron Solutions’ Flare® and many of its different modules.

What is Flare®?

In short, Flare® is a cloud-based framework that allows you to track your employees from their first days of work to their last days with your organization. You can customize your Flare® suite to fit your organization’s needs. All data stored in the system is password protected and housed on secure servers with 99.9% uptime. You have the ability to upload employee information & reporting relations, and store an unlimited number of users and employees.  Some of Flare®’s most attractive features are the customizable modules and the individual, reasonable pricing per module. 

But what’s included in Flare®?  Let’s dig deeper into some of the more popular modules.

Performance Appraisal Module

According to a 2011 SHRM poll, 98% of organizations reported that they have a formal employee performance evaluation process. Although you may have one in place, are your performance reviews completed on paper?  Why not cut time and resources with an online performance review system? With Flare®’s performance appraisal module you can eliminate the hard copy and streamline everyone’s work by having employees’ appraisals pre-populated with their job description and other desired demographics.  In addition, this module is designed with features to ensure all sections are completed prior to submission, to perform mathematical calculations for accurate scoring, and to check for potential legal issues.  Other user favorites include these features:

• Self-Reviews,

• HR approvals,

• Summary reports, and

• Electronic or traditional paper signatures.

Pay for Performance / Merit Increase Module

“While there are pros and cons to using a merit increase approach, in today’s world a majority of organizations attempt to link pay increases to employee performance,” explains National Director Jennifer Loftus.  “With limited merit increase budgets typically around three percent of pay, it’s essential that organizations make clear distinctions in pay increases between the high performers and low performers.”

If the thought of working with multiple spreadsheets and checking formulas makes you dizzy, however, consider Flare®’s pay for performance module.  In three easy steps you will be able to assign all employees with proper merit increases, meeting your merit increase budget and having the necessary reports for senior management. This module is able to calculate increases as a percent of base pay, lump sum, or a combination of both. Factors such as position in range and performance appraisal score can also be taken into consideration.

Job Description Module

According to Jennifer, “the Department of Labor continues its robust investigations of wage and hour complaints.  One of your best defenses in an FLSA audit is up to date and accurate job descriptions.  And with the new FLSA regulations around the corner, now is the time to create or update your organization’s job descriptions.”

Need an accessible place to keep record of your job descriptions?  Need reminders to update your organization’s descriptions more frequently than every five to ten years?  Flare®’s job description module is for you.  This module allows you to design a job description template so all job descriptions are consistent in content type. Authorized staff can prepare draft updates to job description content to be approved by HR.  The Flare® job description module also contains tests for FLSA compliance and a point factor job evaluation system to streamline your work and reporting systems.

Staff Advancement Monitor™

About 52% of respondents from the 2013 Global Assessment Trends report listed developing leaders as a top priority for their organization. Is leadership development a priority for yours?  If so, Flare®’s Staff Advancement Monitor™ module assists you in developing custom primary & secondary competencies and developmental activities for future leaders.  The results tracked in this module can be used for employee promotion recommendations.  Additional features include a listing of all participating employees, their mentors, and targeted goal positions.

Finders Keepers™

The 2013 Global Assessment Trends report also mentioned that 55% of respondents cite engagement of the workforce as a priority this year. Do you want to know if your valued employees are engaged with their work… or with your organization? Would you like to get opinions on where managers can make improvements? With the Finders Keepers™ module, you can! This module allows authorized users to create much needed customized surveys to gather employee opinions, new hire perspectives, and even exit interview data.  On-line, real-time reporting makes data analysis a breeze!

Total Rewards Statements

77% of organizations feel as though they communicate employee benefits effectively. If you want to ensure that your employees are aware of your organization’s reward program, consider Flare®’s Total Rewards Statement module!  With this module, you will be able to securely inform your employees of the value of their total compensation packages in real-time.  Information captured and reported by Flare® in both narrative and graphic formats include and are not limited to salary, variable compensation, and benefit cost & value information.

The Jerk Store Called

Working in an office can be tough with a lot of conflicting personalities, people clashing with their superiors, etc. But the worst are the jerks in the office. The guys who make you say, in the words of George Costanza: "Well, the Jerk Store called, and they're running out of you!"

And the truth is that there are different types of jerks in the office. Beyond.com has a great rundown of the different types that you might encounter (and I've definitely worked with all 15 of those guys), but I like their conclusion to the article:

Office jerks are often unavoidable. Understanding the types and their behaviors is the first step toward making a better workplace for yourself. Don't get pulled into their drama or lower yourself to their level. Focus on your work, co-workers with positive attitudes and keeping your superiors happy. In the end, rude co-workers tend to get exactly what they deserve.

I couldn't agree more. I once worked with a jerk who thought it would be a great idea, when his boss was gone for the day (or, heaven forbid, on vacation), to put his feet up and read a newspaper. People would stop by and see him like this and he thought he was above everyone else. That was until HR stopped by, tapped him on the shoulder and gave him a pink slip. Jerks get the same karma all of us get--just give it time.

Managing the Incoming Millennials

The month of May involves a flurry of graduation ceremonies. These graduates are more than likely already applying to work for your organization. Are you ready to handle them? Astron has explored the concern of working with Millennials in Astronology.  It should not be a surprise that in five years, the majority of our workforce will be the current 80 million millennials. In this issue of Astronology, we review some of the millennial generation’s values, and how organizations can successfully work with those values.

Empowerment through Feedback

A key value for millennials is empowerment. As a leader, how can you empower your millennials? Guest writer for the Ladders.com, Dylan Kaufman writes, “A reported 80% want regular feedback from their managers, and are eager to improve their professional arsenal of skills.” The Ivey Business Journal suggests that millennials have a different “social mindset” due to social media’s presence. Due to constant exposure to instant gratification and instant feedback, millennials require and value feedback more than previous generations. A Business2Community.com article suggests that “some millennials may take the lack of reviews and feedback to mean that they are not appreciated.” Obviously, depending on the field of work and personal preference, the amount of feedback needed will vary.  Conduct formal feedback regularly and pepper with informal feedback throughout the year.

Enthusiastic Work Environment

Millennials value enthusiasm in the workplace.  For loyalty and productivity to grow, employers will have to focus on making the work environment friendly. This means being open in communication and recognizing the value in creating work teams. An IBM survey notes that, similar to Generation X workers, millennial workers prefer to work in groups. The business2community article suggests, “You need to value the importance of the group and instead of ‘laying down the law’ and dictating decisions that affect the whole group, you must involve your team or at least show them why the decision was made. Your team will work better if they feel that the entire group is valued and is in it together.” Also consider the power of transparency in communication. When workers, regardless of their generation group, can communicate clearly and effectively with each other, shared goals are acknowledged and motivation is created. Never forget the connectivity clear communication can create.

Find Flexibility

Millennials value flexibility. As a result, freelancing and self-employment are becoming a trend. To combat this, some employers have offered flexible scheduling as a retention strategy.  However, there is a concern regarding flexibility stigma. This is when employees are viewed as less valuable, due to their flexible scheduling or their less traditional presence in the office space. Despite this concern, 38% of US Millennials are willing to move for better benefits in areas such as parental leave. The Harvard Business Review online suggests, “Give employees some control over when and where they work, combined with managerial support for their work and family lives.” There is a classic fear that people will take advantage of flexible schedule offerings, but Karyn Twaronite, an EY Global Diversity & Inclusiveness Officer mentions, “research shows people aren’t actually asking for all that much. They want flexible start and ending times and telecommuting for 1-2 days per week…these options improve engagement and productivity.”

                                    
Has your organization prepared for the new graduating millennials? Has your organization already hired and started working successfully with millennials? What adjustments has your organization made in order to support this burgeoning group of workers? Tell Astronology about it and we may share your insights with the rest of our readers!