What Employers Need to Know About the New FLSA Rules and Their Impact on HRIS Systems
As of July 1, significant updates to the Fair Labor Standards Act (FLSA) have been implemented, and another major change is slated for January 2025. These updates bring substantial implications for employers, particularly concerning how they manage their Human Resource Information System (HRIS) and handle compensation. Here’s a comprehensive overview of the new rules, their impact on your HRIS system, and what you need to do to stay compliant.
Key Changes Under the New FLSA Rules
- Increased Salary Threshold for Overtime Exemption
The most prominent update is the increase in the salary threshold for overtime exemption. The new threshold has been raised from $35,568 to $47,476 annually. Employees earning less than $47,476 are now eligible for overtime pay, regardless of their job duties.
Impacts on HRIS:
- Position/Job Management: Update your HRIS to accommodate the new salary threshold. The system should accurately track and report employee salaries in relation to the updated exemption threshold.
- Audit your current worker population to see if there are any workers marked as Exempt but are making less than the new threshold.
- Your Job Catalog will need to be reviewed to determine if the exemption status flag on Job Profiles should be adjusted to make any jobs Non-Exempt. Create an audit report on your exempt job profiles that have a minimum or maximum equal to or under the threshold in the pay range.
- For jobs where there may be employees earning more and less than the threshold, you should consider if multiple Job Profiles are needed to support both Exempt and Non-Exempt employees under these updated rules.
- Overtime Calculation (Time Tracking): Ensure your HRIS can calculate and track overtime pay for employees now classified as non-exempt. For Workday, ensure that your FLSA Work Period Calendar and Eligibility Rules are set up correctly.
- FLSA Earning (Payroll): Ensure that there is an earning to calculate the FLSA Premium based on the amount of overtime worked.
- Absence: Review eligibility for time off plans. Review the impact if Exempt and Non-Exempt employees are eligible for different plans, accruals, or time offs.
- Security: Do you have employees that will be newly eligible to track time now that they are Non-Exempt? Review your security to confirm those employees would have access and determine if change management is needed.
- Automatic Updates to Salary Thresholds
The new rules include provisions for automatic adjustments to salary thresholds every three years. The next scheduled update is set for January 2025 when the threshold will increase to $51,168 annually. Here is a link to the department of labor for your review https://www.dol.gov/agencies/whd/overtime/rulemaking
Impacts on HRIS:
- Future-Proofing: Configure your HRIS to handle automatic updates to salary thresholds. Set up alerts or notifications to track changes and ensure compliance without manual intervention.
- Budgeting and Forecasting: Update your HRIS budgeting tools to reflect future salary changes and their impact on payroll expenses.
- Plan to review your Job Catalog as these thresholds change. Creating an audit report will allow you to keep up on your Job Catalog and the jobs with compensation ranges that fit into the new threshold limits.
- Clarification on Job Duties Test
The Department of Labor has clarified the criteria for the job duties test used to determine exemption status for executive, administrative, and professional roles.
Impacts on HRIS:
- Job Descriptions and Titles: Review and update job descriptions and titles in your HRIS to ensure they align with the clarified duties test. Revise job profiles to accurately reflect employees’ roles and responsibilities.
- Compliance Tracking: Implement features in your HRIS to track and document compliance with the new duties test criteria.
- Inclusion of Bonuses and Incentive Payments
Employers can now use nondiscretionary bonuses and incentive payments (up to 10% of the standard salary level) to meet the salary threshold requirements.
Impacts on HRIS:
- Compensation Structures: Update your HRIS to manage and track bonus payments and incentives as part of the salary calculation. Ensure the system differentiates between discretionary and nondiscretionary bonuses.
- Reporting and Analysis: Enhance reporting capabilities to monitor how bonuses and incentives contribute to meeting the salary thresholds.
- Review the compensation structures for potentially impacted employees to determine if a new compensation basis could be useful for determining total compensation and eligibility for exemption.
- Changes to Highly Compensated Employees (HCE) Threshold
The HCE threshold has increased from $100,000 to $134,004 annually. Employees meeting this threshold will be subject to different criteria for exemption.
Impacts on HRIS:
- Salary Reviews: Update your HRIS to reflect the new HCE threshold and review affected employees’ classifications and compensation.
- Payroll Management: Ensure your payroll system can handle the higher threshold and accurately calculate overtime and exemption status for HCEs. If you are using Workday and your employee is eligible for overtime in time tracking and you have previously set up the FLSA calculations, there will be no update needed for payroll.
Conclusion
The July 1 updates to the FLSA and the upcoming changes in January 2025 require employers to make crucial adjustments to their HRIS systems. By understanding these impacts and proactively updating your system, you can ensure compliance, avoid potential penalties, and manage compensation more effectively. Staying ahead of these changes will not only help you meet legal requirements but also support a fair and transparent compensation structure for your employees.
To effectively manage these changes, consider the following steps for your HRIS:
- Review and Update System Configurations
- Ensure that payroll, job description, exemption status, and compensation settings in your HRIS align with the new FLSA rules.
- Implement changes to handle future updates automatically, particularly for salary thresholds.
- For Workday, if FLSA is already enabled in your tenant, these changes have no impact on your current FLSA calendar or pay component configuration; however, this may be a good time to review your current configuration.
- How do you determine what pay components are included in the regular rate of pay calculation within your Workday tenant? Search for the View Pay Component Groups task: FLSA Wages, FLSA Hours. You can also validate that all pay components in the FLSA Wages pay component group are configured to resolve by FLSA period and that coverage dates are enable, as well as if the pay component should be allocated across periods and paid through input or one time payment. Run the All Earnings report to check this. This may also be a good time to reach out your internal legal or compliance teams to determine if your organization is impacted by any of the overtime updates for California, Pennsylvania, or Alabama.
- Audit Job Descriptions and Titles
- Conduct a thorough review of job descriptions and titles in your HRIS to ensure compliance with the clarified duties test.
- Make necessary adjustments to accurately reflect employees’ roles and maintain compliance.
- Audit the Current Population in your HRIS Tenant
- Conduct an audit on your current employees to confirm if they are appropriately marked exempt/non-exempt.
- Make the necessary changes to update an employees compensation or job information to comply with the latest updates.
- Enhance Reporting and Tracking
- Update reporting features to include new salary thresholds, overtime calculations, and bonus tracking.
- Set up alerts or notifications within your HRIS to stay informed about upcoming changes and compliance requirements.
- Communicate Changes
- Inform your HR team and payroll department about the updates and ensure they understand the implications for the HRIS and overall compensation management.
- Provide training if necessary to ensure that all relevant personnel are up-to-date on the new rules and how they affect the HRIS.
If your organization requires support to navigate these updates in your Workday tenant, contact us today to get started!
