Wait, I can just pay everyone a salary?

Wait, I can just pay everyone a salary?

Yes, this is true. But not so fast!

The recent changes in FLSA requirements have people’s heads spinning about implementing a reasonable approach to compliance. Let me translate that. People don’t know how to get in line with the new regulations. Here’s the thing. The regulations are essentially the same. It’s impacting more of your workforce.

The regulations are essentially the same. It’s impacting more of your workforce.

Detailed guidance from the Department of Labor can be found here: DOL FLSA Guidance

I would read these pages and then read it again and then make sure it’s bookmarked for a reference tool! I’m serious. It’s the best summary I’ve ever read about FLSA compliance. It gives you a summary of the law and examples of how to comply.

At one point in my career I gave a manager the same advice and he came back to me exclaiming, “Wait – I can just pay everyone a salary?” Here’s my response to him and I think it will be helpful to you!

You can pay people for 40 hours every week without tracking their exact hours. Nothing in the law says you can’t pay people a standard 40 hours per week, regardless of their exemption status. BUT (and this is a biggie!) you have to give a non-exempt person the ability to submit hours for overtime pay if they work more than 40 hours and you’ll have to pay them at least time and a half in overtime pay. So that begs the question, how will they know if they worked more than 40 hours? And how will you know (as the employer) if they’re being truthful?

The answer is tracking.

Employees who do not have an exemption under the law will still have to be able to track, submit and be paid for hours greater than 40. So here are the two things you need to know if you go down this path of paying everyone a salary:

  1. Hours worked include checking email on your phone, working while at home or on vacation, and all the other times we find ourselves supporting our businesses both in and out of regular working hours. Those hours need to be tracked in some way and will likely lead people who are not exempt from earning overtime the ability to submit this time.
  2. Work with your finance and accounting teams to budget appropriately for the new costs. If you start paying salaries to everyone in your organization, like my client was thinking about doing, you could incur higher costs. Salary means 40 (or maybe 37.5 hours in your case if your office is open 8:30-4:30) whether the person works 40 or not. While every business is different, I generally don’t recommend this approach. But if your finance team budgets 45 hours per week (40 regular hours, 5 overtime hours) for each person who is considered to be non-exempt I think you’d be able to accrue what you need to get you through the ups and downs of cost impact of the new law. Take this approach in the first six months of the year, revisit the spend versus budget around March or April and see how you need to adjust for your business.

One other thing … I support a number of businesses that do special events or they have employees who travel. The new exemption requirements may impact those employees also! Email me to schedule a time to talk about how you can navigate through unusual work schedules and travel pay!