Prepare for Overtime Rule Changes: A Step-by-Step Guide for Small Businesses

The new overtime regulations are set to bring significant changes for businesses. To help you stay ahead, we’ve compiled a comprehensive guide on what steps to take and how to implement them effectively. Plus, discover how Focus HR can proactively manage these changes for you.

Step 1: Classification Review

How to Classify Your Employees and Review Their Job Duties

  1. Gather Job Descriptions:
    • Collect up-to-date job descriptions for all positions within your organization. Ensure these descriptions accurately reflect the actual job duties and responsibilities of each role.
  2. Determine Current Classifications:
    • Identify which employees are currently classified as exempt or non-exempt under the Fair Labor Standards Act (FLSA). Use payroll records and offer letters to verify current classifications.
    • Focus HR Proactive Approach: We provide tools and advisory support to help you easily track and verify employee classifications.
  3. Review Job Duties Against FLSA Criteria:
    • Compare the job duties of each role against the FLSA’s criteria for exempt and non-exempt classifications. The main categories are:
      • Executive Exemption:
        1. Primary duty is managing the enterprise, managing a department or subdivision, and regularly directing the work of at least two other employees.
        2. Must have the authority to hire or fire other employees, or their recommendations must carry particular weight.
      • Administrative Exemption:
        1. Primary duty is performing office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers. A great example that meets this test is a Project Manager. However, administrative staff (front office, clerical, back office) typically do not.
        2. Includes the exercise of discretion and independent judgment with respect to matters of significance.
      • Professional Exemption:
        1. Primary duty involves performing work requiring advanced knowledge, which is predominantly intellectual and includes the consistent exercise of discretion and judgment.
        2. The advanced knowledge must be in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction.
      • Outside Sales Exemption:
        1. Primary duty is making sales or obtaining orders or contracts for services or the use of facilities.
        2. The employee must be customarily and regularly engaged away from the employer’s place of business.
      • Computer Employee Exemption:
        1. Applies to computer systems analysts, computer programmers, software engineers, or other similarly skilled workers in the computer field.
        2. Primary duty must consist of:
  • Application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications;
  • Design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
  • Design, documentation, testing, creation, or modification of computer programs related to machine operating systems; or
  • A combination of the aforementioned duties, requiring the same level of skills.

Step 2: Impact Assessment

How to Assess the Impact on Your Business

  1. Analyze Affected Employees:
    • List all employees who will be impacted by the new salary thresholds. Group them by department, role, and current salary to understand the scope of changes needed.
    • Focus HR Proactive Approach: We conduct thorough audits to identify and rectify any misclassifications, reducing your risk of non-compliance.
  2. Financial Implications:
    • Calculate the financial impact of potential salary adjustments versus the cost of paying overtime. Consider employees’ current working hours and any expected increase in overtime payments. Costs reflecting any changes to employee benefits (including PTO) should also figure into the analysis.
    • Focus HR Proactive Approach: Our HRIS software, combined with assistance from one of our professional HR advisors, can help you make data-driven decisions around salary adjustments versus overtime costs.
  3. Employee Morale:
    • Consider how changes in classification or salary might affect employee morale. Prepare a communication plan to address concerns and explain the reasons behind the changes.
    • Focus HR Proactive Approach: We guide clients in creating an effective communication approach that maintains transparency and boost employee morale during these kinds of transitions.

Step 3: Weighing the Options

How to Decide Between Salary Increases and Reclassification

  1. Salary Increase:
    • Determine which employees’ salaries can be increased to meet the new exempt minimums. Assess the long-term sustainability of these increases within your budget.
    • Focus HR Proactive Approach: We assist in evaluating the financial feasibility of salary increases and provide guidance on sustainable compensation strategies.
  2. Reclassification to Non-Exempt:
    • For employees who cannot be given a salary increase, consider reclassifying them to non-exempt. Prepare for potential increases in overtime costs and changes in how these employees track their work hours.
    • Focus HR Proactive Approach: We offer solutions for managing overtime costs and streamline the reclassification process.

Step 4: Beyond Salary and Morale

How to Manage Recordkeeping, Benefits, and Policies

  1. Enhanced Recordkeeping:
    • Implement timekeeping systems to accurately track non-exempt employees’ work hours. Ensure these systems are user-friendly and compliant with legal requirements.
    • Focus HR Proactive Approach: We offer time & attendance solutions for our clients which simplifies timekeeping and record management, ensuring compliance with minimal effort on your part.
  2. Reviewing Benefits:
    • Analyze how benefits tied to compensation might be impacted by reclassification. Adjust benefits packages as needed to maintain competitive compensation and compliance.
    • Focus HR Proactive Approach: Our experienced benefits administrators will help you review and adjust benefits structures to reflect changes in employee classification.
  3. Updating Company Policies:
    • Revise policies on the use of company equipment, work hours, and overtime. Ensure clear expectations for both exempt and non-exempt employees, especially regarding work outside regular business hours or while traveling.
    • Focus HR Proactive Approach: We can assist in updating company policies and ensuring consistent communication on any benefits, timekeeping or compensation changes across your organization.

Step 5: Training and Communication

How to Prepare and Inform Your Employees

  1. Advance Notice:
    • Provide impacted employees 
    • with advance notice of changes in classification or salary. Offer detailed explanations and be transparent about the reasons behind the changes.
  2. Training Programs:
    • Implement training sessions to educate employees about new timekeeping procedures, meal and rest break policies, overtime approval processes, and any other relevant adjustments.

The Bottom Line: Be Proactive, Not Reactive

The upcoming overtime rule changes might seem daunting, but with proactive planning, you can navigate them smoothly. By taking the steps outlined above and considering all potential implications, you can make informed decisions that minimize disruption, maintain employee morale, and ensure legal compliance.

However, navigating these changes can be complex, especially for busy business owners. That’s where Focus HR comes in. We offer a comprehensive suite of HR solutions, including user-friendly HR technology that makes implementing changes like these far more palatable. Our HRIS software streamlines tasks like employee classification, payroll processing, and timekeeping, freeing you up to focus on what matters most – running your business.

Don’t wait until the deadlines loom. Schedule a free consultation today! We’ll help you understand the new overtime rules, assess your options, and develop a customized plan to ensure your business stays compliant.

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