FLSA changes may affect employee compensation

By Randy Bonnecaze

It's time to reassess how you compensate your employees. The U.S. Department of Labor (DOL) has issued new revisions to the Fair Labor Standards Act (FLSA), which took effect on Aug. 23. And these revised rules could change the way your construction business applies the FLSA and pays its workers.

Employers can compensate employees either hourly or with a salary. If you pay them hourly, they are always nonexempt. That is, you must pay them for overtime. But if they receive a salary, they may be exempt from overtime pay requirements - but only if they meet the FLSA's new salary and standard duties tests.

The salary test. The salary test consists of two parts, the salary level and the salary basis. The minimum salary level required for exemption has been raised from $155 to $455 per week ($23,660 per year).

To be exempt, administrative, executive and professional employees must generally be paid at least $455 per week in salary. And you cannot reduce the amount paid because of a variation in the quality or quantity of the work performed. So any employee earning less than the $455 amount automatically qualifies for overtime pay.

Highly compensated employees who perform office or nonmanual work and receive $100,000 or more annually (which must include at least $455 per week paid on a salary or fee basis) are exempt, provided they meet the standard duties test. If a worker doesn't meet the $100,000 minimum, you must test him or her under the standard duties test.

The standard duties test. For employees to be classified as exempt under the standard duties test, they must meet the criteria contained within the following classifications:

The executive exemption. Employees in this category must primarily perform a management duty, customarily and regularly direct the work of two or more other workers, and possess the authority to hire or fire other employees or make recommendations on hiring and firing.

The administrative exemption. This includes employees who mainly perform office or nonmanual work directly related to the management or general business operations of an employer or the employer's customers. They must also regularly exercise discretion and independent judgment with respect to matters of significance.

The professional exemption. These staffers need to have both specialized knowledge and an advanced formal education, according to the primary duties test. Thus, you must evaluate whether, to perform his or her work, the employee requires advanced knowledge - including advanced knowledge in a field of science or learning or advanced knowledge that's customarily acquired by a prolonged course of specialized intellectual instruction.

Implementation strategies. Given these new rules, you need to re-evaluate your work force and determine whether and how you must adapt to the revised FLSA. First, test whether you're properly calculating overtime for nonexempt employees. Meanwhile, ensure that exempt workers' job duties still fall within the administrative, executive or professional classifications.

In addition, update your job descriptions to reflect the work being performed and the required skills for each position. You may have to change some so they fit the preferred classification for the position in question.

You may also want to raise the salaries of certain employees to the $455 per week threshold to push those workers into the exempt category. Meanwhile, identify where you should require other employees to adhere to a 40-hour workweek to lower overtime costs.

Comply and save. Properly implementing strategies to handle the new FLSA regulations will require time and money. But doing so could save your construction business considerable dollars in the long run. Failing to comply with the FLSA's rules could subject you to potentially expensive employee class action lawsuits and DOL audits.

Editor's Note: Randy J. Bonnecaze is a Certified Public Accountant (CPA) with Hannis T. Bourgeois LLP, Baton Rouge.