New overtime regulations were unveiled by the U.S. Department of Labor (DOL) dramatically impacting which employees can be classified as exempt or nonexempt, and therefore due overtime for any hours worked more than 40 in a workweek. Employers must comply with the changes by December 1, 2016.

1. Learn how CBIZ can help you meet your FSLA compliance requirements at www.cbiz.com/overtime
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New overtime regulations were unveiled by the U.S. Department of Labor (DOL) dramatically impacting
which employees can be classified as exempt or nonexempt, and therefore due overtime for any hours
worked more than 40 in a workweek. Employers must comply with the changes by December 1, 2016.
Implementing the Overtime Regulations:
5 Steps to Controlling Costs
Key changes to the Fair Labor Standards Act (FLSA)
include:
■■ The minimum salary test for an employee to be
exempt from overtime will become $47,476.
■■ The level will increase every three
years going forward.
■■ Employers will be able to include
nondiscretionary bonuses to satisfy up to
10 percent of the new salary threshold.
■■ The rarely used “highly compensated employee”
exemption will now require pay of $134,004
and will also increase every three years.
What Is Still the Same?
Although the consequences of the changes are quite
dramatic, much of the existing regulation remains intact.
Specifically, employees above the $47,476 threshold
must still pass one of the duties tests (i.e. executive,
administrative, professional, etc.).
5 Steps to Predicting and Controlling Costs
Companies are seeking to control the costs of
implementing the revised regulations in a manner that is
consistent with their culture. Employers have numerous
options and scenarios on how to comply, each with
different costs, pros/cons, employee morale and cultural
implications that must be understood and weighed. To
this end, the following approach can be used to optimize
implementation.

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1. Identify Affected Employees – Employees previously
considered exempt that now fall below the new salary
threshold must be identified. This can be easily
accomplished through collecting and analyzing the
current job and classification documentation, actual
employee compensation (salary, non-discretionary bonus,
incentive pay and commissions) and current FLSA status.
The only real decision point in this step is whether to
evaluate based on employee or by entire jobs (in other
words, should exempt employees who are above the
$47,476 threshold but are in a job with employees below
the threshold be included).
2. Analyze Alternatives – Too many employers are simply
deciding on one of the DOL’s simplistic implementation
scenarios and then calculating the associated costs.
However, best practices indicate that employers should
evaluate all of their options before choosing the best
path. Analyses that could be undertaken include:
■■ Zero-cost implementation strategy: Consider
developing an hourly rate for affected employees by
dividing their salary by the number of hours currently
worked or expected of the position on an annual
basis (i.e. perhaps 45 hours a week rather than 40).
■■ Increase all employees to the new minimum:
Analyze the cost of bringing all affected
employees to the new salary test minimum in
order to maintain their exemption status.
■■ What-if analysis: Conduct analyses to
determine the cost of bringing some affected
employees to the new minimum while changing
others to hourly (perhaps drawing a line at
varying levels of pay below the threshold).
■■ Job modeling: Generally, it is recommended
that all employees in the same title have the
same exemption status. Model the cost of
changing all employees in a title with one
incumbent below the threshold to nonexempt.
■■ Compression Analysis: Artificially increasing
pay for some employees to the $47,476
threshold will almost certainly create
compression with the pay of other employees
in the same job or other jobs. It is important
to identify and address areas of compression
before finalizing an implementation plan.
■■ Productivity loss: Consider productivity implications.
If formerly exempt employees who fall below the
salary threshold are moved to the non-exempt status
but capped at 40-hours per week to avoid overtime
pay, what is the total value of lost productivity or
amount that would have to be paid to hire new
employees to replace the loss in productivity?
How does this compare to the cost of allowing
the affected employees to work overtime?
■■ Long-term projections: The DOL’s methodology for
updating the minimum salary threshold may result in
nearly exponential growth. Accordingly, an analysis
of the organizational impact over the next three, six,
nine and 12 years is often an eye-opening exercise.
It is recommended that a long-term analysis be
conducted using both the best and worst case
scenarios. Specifically, the DOL’s update projections
are exceptionally conservative and represent
the minimum possible impact to employers. The
worst case scenario (and in the opinion of the
author more likely) is that the minimum salary
threshold will grow exponentially resulting in
an annual average of 13.3 percent of exempt
employees automatically becoming nonexempt.
3. Determine Current Misclassifications – Many
organizations have some employees misclassified as
exempt from the FLSA. Because the changing overtime
regulations are in the news, perhaps now is the time to
clean up any misclassifications without drawing attention
to past noncompliance.
4. Develop Strategies – Based upon the analyses
conducted above, it is time to make a decision.
Which implementation strategy, or combination
of implementation strategies, best balances your
organization’s cultural needs with affordability?
5. Communicate Changes – Finally, it is important
to provide affected employees with individualized
communication explaining how the revised regulation
will affect their exemption status and pay, as well as
procedures and policies for tracking time.

3. Learn how CBIZ can help you meet your FSLA compliance requirements at www.cbiz.com/overtime
HUMAN CAPITAL SERVICES
Our business is growing yours
It is time to begin taking steps to ensure compliance
by December 1, 2016. A provider experienced with
compensation may be able to help your company identify
how your company can meet the new requirements with
minimal cost.
©Copyright2016.CBIZ,Inc.NYSEListed:CBZ.Allrightsreserved.
If you have any specific questions, comments
or concerns about your organization’s FSLA
compliance, please contact:
Amber Duncan
Human Capital Services
alduncan@cbiz.com | 314.692.5820