Time is up. The U.S. Department of Labor (DOL) has finally enacted its first major update to overtime pay legislation in 15 years, taking effect on January 1. The new rules have been a hot topic since 2016, when an earlier version of the proposal was blocked at the last minute by a court injunction, following a challenge by the state of Texas. The DOL went back to the drawing board, and the result is a revised and updated Fair Labor Standards Act (FLSA), which determines if employees are eligible or exempt for overtime pay (paid time and a half for any hours worked above 40 in a workweek.)

The DOL estimates 1.3 million workers will become newly entitled to overtime protection thanks to a key component of the new 2020 rules: an update to the minimum salary thresholds necessary to exempt “white-collar” employees from FLSA minimum wage and overtime pay requirements. While the current salary thresholds jump from $455 a week to $684 a week (or $35,568 in a year), it’s actually lower than what was proposed in 2016.

“The new FLSA rules take a more moderate approach than the original 2016 plan, which called for a salary threshold of $913 a week, nearly double the previous threshold,” says Kathleen McLeod Caminiti, partner in the New York and New Jersey offices of Fisher Phillips, a labor and employment legal firm. She also co-chairs the firm’s Wage and Hour and Pay Equity practice groups.

While the increased salary threshold is big news, meeting the salary threshold doesn’t automatically exempt an employee from overtime pay, Caminiti explains. To be exempt, an employee must also be paid on a regular salaried basis and must meet the duties test, which include many white collar and management responsibilities (see the sidebar on the right for more details). If certain employees don’t pass the “duty test,” the employer could be on the hook for overtime, which is why updating company job classifications to ensure compliance with FLSA rules is critical. “The rules of classification have always been around, published by the DOL via the FLSA – this proposal simply sheds light on compliance with the policies,” says Christopher Boeckman, HR manager for Boost Engagement LLC, parent company of Shumsky (asi/326300).

Many companies started taking steps in 2016 to meet proposed changes in the FLSA rules, despite uncertainty and ambiguity surrounding the legislation. “Companies had expected the earlier plan would go through and were already looking at what they needed to do, such as programming payroll and updating handbooks,” says Caminiti. She adds that over three years ago, companies accepted that the new threshold would become law, so they’re “somewhat relieved” the $913 salary threshold didn’t take hold. Now they can plan with certainty.

For those who don’t yet have a plan in place, Caminiti says, “Now is a good time for employers to review whether their salaried employee population falls within one of the exemptions recognized by the DOL based on their job duties and responsibilities, and to review their wage and hour practices in general.”

“I think the promo industry is ready for these new rules,” says Gordon Lindert, HR director for Sutter’s Mill Specialties (asi/340210) in Tempe, AZ. “They just need to take a close look at their employees and what their duties entail.”

Ahead of the Curve
The promotional products companies Counselor spoke with for this article have all taken measures to address the proposed changes.

SanMar (asi/84863) was well-prepared in adopting a compliant plan. “The 2016 plan was about five days from deadline when it got challenged and postponed – we had already put a plan in place by then,” says Jennifer Larson, vice president of human resources for the Top 40 supplier. “We wanted to get ahead of it and be ready for it.”

The apparel supplier reviewed job descriptions and moved some employees to nonexempt status based on the higher salary threshold from 2016. As a result, no further changes will be required in 2020, she adds.

Boost also began taking the steps to be FLSA-compliant when the original proposal was introduced in 2016. “We did a deep dive into how our employees/positions were classified,” says Boeckman. “Our biggest challenge was simply determining how each specific position should be categorized (exempt vs. nonexempt), which was challenging because of the nuances within each classification.”

The company pulled all job descriptions for review. “This was actually a silver lining,” he says, “as we were able to update many outdated job descriptions and force a more holistic organizational alignment between departments, teams and individual positions as it related to our overall strategy and goals.” Boost then reclassified positions where it was appropriate and retrained nonexempt employees and their managers on overtime.

“We placed a cap to control this cost with overtime and held employees and managers accountable for adequate time management,” Boeckman adds.

Sutter’s Mill examined the salaried nonexempt employees in its organization and made changes to those affected by the new FLSA laws in 2019. “The biggest challenge we had was that we had some salaried personnel who were out of compliance on the minimum salary the employee should be paid,” Lindert says, “so we either had to increase their salary to meet the minimum or convert the employee to an hourly wage instead of salary.”

Of the 142 employees in Sutter’s Mill admin and production areas, only three employees were impacted by the overtime law change. “No job descriptions were changed, but some salaries were increased or converted into hourly wages,” Lindert notes, adding that a few employees took the shift from salary to hourly as a demotion. However, “after I explained that they would now get paid for anything they worked over 40 hours within the pay week at time and a half, they accepted the change with a smile,” he says.

Top 40 supplier Polyconcept North America (PCNA, asi/78897) will be making no changes in 2020 after taking action for the original overtime proposal, says Melissa Rearick, PCNA senior manager of HR shared services, total rewards and talent acquisition. “We performed an analysis at the time and determined there were some people below the 2016 proposed salary threshold classified as exempt, and these positions were legitimately exempt based on their job duties,” says Rearick. “We could’ve given them a raise or made them eligible for overtime; we opted to move forward and increase their annual salaries to at or above the $47,476 ($913 per week) threshold.”

Rearick adds, “In terms of market competition, it was the right thing to do. It kept that level of job competitive and we wanted to preserve that, even though we weren’t required to.” All of PCNA’s production employees have always been eligible for overtime, so those positions were not impacted, she notes.

Dubow Textile (asi/700107), a full-service contract decorator based in St. Cloud, MN, regularly reviews and adjusts compensation for its staff. “All our job descriptions and salary levels are in compliance for both exempt and non-exempt employees,” says Rob Dubow, CEO. “We currently have about 200 full-time staff members, with a small proportion of those being salary. We didn’t have to make any adjustments in our designations or wage scales to be compliant.”

Where to Turn for Help
Even if distributors and suppliers find the new FLSA rules and regulations to be confusing, ignorance is no defense for labor law violations. “If you feel you have a potential problem, don’t put your head in the sand,” says Caminiti. “State laws are becoming more progressive and carry stiff penalties.”

Also, company size doesn’t matter, Caminiti says: “Don’t assume because you’re a small operator that you won’t find yourself in a lawsuit – there’s no safe harbor.” She adds that mid- to larger size companies should consider consulting with employment lawyers to help ensure they’re compliant.

If you don’t have a legal team by your side to sift through FLSA compliance, the U.S. Department of Labor website offers many resources for small employers.

Another helpful resource is the Society for Human Resource Management (SHRM). “I’ve been in HR for many years, and I’m a member of SHRM,” says Rearick. “I receive daily emails on topical issues; it’s a cost-effective way to stay up to date on compliance and regulatory issues, and I use it to help me keep a finger on the pulse.”

Jean Erickson is a contributing writer for Counselor.