New Final Rule on Exempt vs Nonexempt Employees - Action Required by July 1st
Business owners ask me questions all the time about the rules regarding Exempt vs Nonexempt employees (mostly as it relates to overtime pay). If you are a company with 1 employee or 5,000 employees, you need to pay attention to any changes to the FLSA, and we just received a new rule that requires a big change starting in July.
First off, let's help you understand this part of the Fair Labor Standards Act (FLSA). All employees governed by the FLSA (which are most in our country) are required to be paid minimum wage and payment for working overtime. The FLSA has an “exemption” for certain employees to not be subject to this regulation. This means they are “exempt” as a classification. As small business owners, this usually matters to us because we don’t have to pay exempt employees overtime pay. On the flip side, if the employees do not qualify for an exemption, they are classified as “non-exempt”, and you must pay them overtime when they work over 40 hours in a work week.
What makes an employee exempt?
The popular misconception by my clients is that they get to choose. However, it is not up to you. The business can’t make that determination. The classification is defined by the job duties, pay level, and pay type. You can classify an employee as exempt only if they pass the job duties test, the salary threshold test, and the pay type test. And they need to meet all of them, and not just one or two.
1. Job Duties Test - They are given little supervision and have the authority to make recommendations. Their titles can look like the following: lawyers, accountants, marketing professionals, business executives, managers, etc.
2. Salary Threshold Test - The employee gets paid over a certain amount (we will talk about that in a minute).
3. Pay Type Test -Their pay doesn’t change week to week (salaried not hourly). Do not fall into the trap of thinking everyone that is salaried is automatically exempt because their pay type is NOT the sole determination. You cannot take an employee who should receive overtime pay, pay them as salaried instead and then call them exempt. It just does not work like that, and you can get in some trouble with the DOL if you try.
There is a also a Specific Job Test that bypasses the above tests that you can look up on the DOL website for specific jobs (for small businesses, this would be like outside salespeople and some computer/IT based employees) that would make them exempt.
Other than these exemptions, everyone is non-exempt. For my small businesses, that means these types of jobs - administrative assistants, bookkeepers, customer service people, and any clerical level employees are non-exempt. Basically, anyone that has more routine tasks and takes direction - these people have no exemption from the rule.
There are also certain industries that have special exemptions such as automobile dealers. So, it is always best to check the regulations!
Now what changed with this new “Final Rule”?
One of the parameters in the list above (#2) states that one “test” of whether a position can be exempt is the salary threshold test. To be exempt, you can make no less than $35,568. If you make less, you are automatically non-exempt no matter what your job description says.
Well, that salary number is changing in a big way. In this final rule, the salary threshold will increase from the present (since 2019) annual salary threshold of $35,568 to the annual salary of $43,888 and increases to $58,656 on Jan. 1, 2025. This will go into effect on July 1, 2024.
So, what do you do because of this change?
For this current change upcoming, you need to query your list of employees that make under $58,656 and they will need to be reclassified as non-exempt by July 1.
What will this do to your business if you have someone that is currently classified as exempt but makes under this new threshold?
If the person doesn’t work overtime at all, this will have no impact on your business.
If the person doesn’t log in and out, they will need to starting on July 1st because at any time you will need proof of when they worked.
If the person does work overtime, you will need to pay them for it.
What are options you can do to mitigate any issues?
Just agree to start paying overtime and be done with it
Find other people to do the additional work so that the person never can work overtime - and tell them they aren’t allowed to work overtime unless it is approved in advance. You could hire a part time person (we can also help with this)
or see if someone else is underworked that can pick up the duties
Raise their pay over $58,656 and they will not be affected.
As a Side Note:
You might want to re-examine the classification you have for all your employees and make sure the way you have classified them is legal. Even if someone makes over $58,656 - they still need job duties that are considered appropriate to be exempt. The misclassification of employees can carry with it a high fine from the DOL and back pay for years. So please don’t make this mistake.
Homework for You
If I were you, I would print out a list of all employees that are currently classified as exempt and make sure they really pass the “tests” above. Can’t hurt to be sure.
We did record a podcast on this a couple months ago, where we talked about getting prepared for this new final rule and the implications. It is 10 minutes and definitely worth your time:
How Innovative Outsourcing and tHRiving: HR for Small Business Can Help:
One of the best services we perform for our clients is our HR Audit. An HR tool built for small businesses to identify the strengths and weaknesses of their HR. As part of the HR Audit, we look at your classifications and 13 other areas of HR to see where you are at. Pricing for this HR Audit starts at $2,500.
How to Retain Your Staff Better than Other Small Businesses
How to Retain Your Staff Better than Other Small Businesses
Let’s talk about Retention.
If you know me or have heard me speak, you know how passionate I am about how retention in small business can drastically change your bottom line. I talk to a lot of Business Owners and CEOs about retention, and the overwhelming theme is that HR is “soft”, “touchy feely”, or the “only department that does not have to reach a goal or quota.”
I am a Mathematical Economics major. You are probably asking how I got into HR, and that is a fair question. However, that means I love data. So we are going to go over some statistics that disprove that HR “does not affect your bottom line as a small business.”
The stats:
3.7% Unemployment Rate (this is staying for the moment)
47% of Active U.S. employees are “watching or actively looking for new opportunities”
Replacing exiting workers costs .5x - 2x the employee's annual salary. Assuming an average salary of $50,000 that replacement cost translates to between $25,000 and $100,000 per employee.
Obviously, your small business is probably perfect and no one will ever leave your organization. However, 47% is a huge percentage of employees who are looking to leave for a new job and actually admitted to it on a survey. If you combine that with the cost outlined above you will hopefully realize that HR and retention dramatically affect the bottom line of your small business.
Want more stats? Here you go:
- In 2021-2022, a majority of workers who quit their job were asked and they said these were the top factors:
63% - Low Pay
63% - No Opportunities for Advancement
57% - Felt Disrespected at Work
Before you roll your eyes, think for a second about this. Maybe you cannot match the offer that Google just gave your EA. However, there are things that may be considered “touchy feely” or “soft” that can affect your bottom line. And did I forget to mention… a lot of this is free!
So here are the areas of Retention that we are going to focus on the next couple of weeks:
Competitive Salary
Career Path for Employees
Health Benefits, 401k, and PTO
Flexible Hours
Flexible Work Location (some 4-day workweek talk as well)
Unique Benefits No One Else is Offering
Leadership Development or Mentoring Programs
Great Looking Work Environment
That’s the start! Can’t wait to hear your thoughts in the coming week.
In the meantime, here is our Small Business HR Quiz. See where you are at and where you may need some help:
How to Get the Onboarding Process Right the First Time - Part 4 of 5
How to Get the Onboarding Process Right - Part 4 of 5
Onboarding seems straightforward to most small businesses. So you might be asking yourself the question: "Why is Cindi Filer spending so much time trying to perfect our onboarding processes?"
This statistic should help answer that question:
91% of new hires will determine if they want to start/stay based on how they are onboarded.
You want to get this right... Trust me!! So we will continue from our last onboarding principles:
ONBOARDING PRINCIPLE #2 – Tell Your Company Story
New employees want to know why you do what you do. So spend some time telling them the company story and answering questions like these:
Why and when did the company start?
Who started the organization?
What is the “heart” behind the company?
Is there any special history that the business is proud of?
This could be done in a few ways:
“Hype style” video
In a meeting with the CEO presenting to group
A one-on-one lunch with a leader.
ONBOARDING PRINCIPLE #3 – Get New Team Members Excited to Work at the Company
The new hire will be excited about being at your company if you (as their leader) are excited. That’s it.
Your energy level and excitement for the company (or your lack of it) will show through clearly. Make sure you bring that energy in their first weeks (hopefully forever). Remember, excited engaged employee are more productive so it is beneficial for you to put in the effort and energy!!
ONBOARDING PRINCIPLE #4 – Train New Employees Well and Quickly
Training is important – systematic training. The “follow me and just do what I do” is not the best training approach. Before you hire someone, make sure that you are ready to train well. Have manuals, videos, or team members ready with instruction that is clear and well done. New employees that get poor training typically fail.
A couple more important stats that you should be aware of:
59% of employees report no workplace training! (WOW.)
70% of employees believe they lack the skills needed to do their job.
So, if you train well – you have a huge leg up on your competition for talent!
Our HR Audit
We have an HR Audit, where we discuss your onboarding process in depth and make suggestions that fit your company. We also will evaluate the other 13 areas of HR and give our recommendations. HR Audit Info
How Onboarding Well Can Improve Retention
How Onboarding Well Can Improve Retention
When I ask a client about their onboarding of new employees, they often tell me about their new hire payroll documents. And then I say to them, "What about the other onboarding activities?"
And I get a blank stare...
Just to refresh this statistic from my blog on Pre-boarding:
“Even after accepting a position, 91% are willing to quit within the first month and 93% during the probation period if the job doesn’t match their expectations.” - survey from Robert Half
With that said, let’s take a look at some of my favorite strategies around onboarding new employees:
Your New Goals for Onboarding:
1. Get your new employees super excited - one CEO of a large corporation we created onboarding for said, “I want to make the new hire run through the wall for our company”. They need to be fired up when finished with onboarding.
2. Help your new employees understand the general employment policies and expectations - This should also be company wide, but they need to know the information.
3. Make them feel like they made the correct decision in taking this job - Sounds like it is not your job, but it is.
4. Tell your company story - You want new employees to get behind the mission, values, and history of your small business.
5. Help them to create great relationships - Introduce them to people around the office. Set up lunches for them with different people that will be useful to know.
6. Help them to learn necessary skills - This is the basics, but set them up well to learn the role
7. Help them to know where to go for help and information - If they have questions about anything, they should know the best people to answer them.
Keep in mind the following statistic:
“A strong onboarding process improve new hire retention by 82 percent and productivity by over 70 percent.”
With these new "Onboarding Goals" in mind – think to yourself.
Is this a strength of our company?
When new employees are done onboarding, are they so aligned and ready to go that they hit the ground running with excited anticipation?
If not, let’s get to work. Two pieces of advice:
#1 – The importance of setting aside the time to do onboarding well.
The boss needs to participate and understand the importance of setting aside precious time in the first 2 weeks to do this well. We find that this is a real problem. If a boss doesn’t understand this critical need to onboard well, they just throw them in the job quickly to get work done. They are undermining future productivity without giving onboarding adequate time and attention.
#2 – The boss is the best person to onboard
The boss acts as a quarterback to determine what all is needed and to set up meetings and programs either with HR or alone if no HR exists to make sure all the objectives are met.
We will delve into more onboarding best practices next time!
Here are some links to our website and podcast. If you are a small business with recruiting or HR needs, please reach out to me at cfiler@innovative-outsourcing.com
How to Onboard New Employees Better than Other Small Businesses
How to Onboard New Employees Better than Other Small Businesses - Part 1
“Even after accepting a position, 91% are willing to quit within the first month and 93% during the probation period if the job doesn’t match their expectations” - survey from Robert Half
Hiring is not easy in a small business. You spend time and money getting the right candidates for your organization. You make the job offer to your dream candidate, and they accept. The work is done, right? Wrong.
Now, the real challenge begins – Onboarding New Employees. It is time to make the best impression possible for their first 30 days.
The statistic above didn’t happen five years ago and we need to be paying attention to the onboarding process. Let’s talk about some things we can do to keep the talent that we just hired.
In this series, we will go through our thoughts and advice on the whole onboarding process in small business.
Today, we will talk about Pre-boarding.
This is what you do in between when the offer is accepted and prior to the start date. Here are some ways to ensure your new employee has a great feeling about your company even before their first day:
Day after the offer is accepted – Send something with your logo on it in the mail (a t-shirt, mug, frisbee – anything you have) with a handwritten note from the hiring manager about how excited you are to have this person coming.
3 days after the offer is accepted – Have each coworker (up to 7) email the person in the same morning – with a “we are so excited” email introducing themselves.
5 days after the offer is accepted – Share with them a schedule of their first week of employment including planned lunches with specific people, meetings with peers, time for them to acclimate at their desk, any training they need to go through.
6-8 days after the offer is accepted – The CEO (yes the CEO) calls to tell the person they are excited to meet them. If no one answers, just leave a message and your call back number.
If there will be weeks prior to their start date – keep emailing every Friday – to tell them some things that are going on in the department and giving them some additional information.
In addition to these things, you need to send your new hire paperwork during this time. The new hire paperwork needs to be:
Easy to complete and return (electronic signature only – no faxing required). If it can be done on a mobile device – even better.
Thorough and professional looking – not dripping 6 emails with different docs to handle – but in a one-stop-shop fashion.
If there is any document that is not absolutely required, drop it. Completing too many docs is onerous.
Whoever is sending the new hire docs needs to be pleasant and helpful in verbal and written communication. Use terms like, “thank you for completing so quickly”, “I know your hiring manager is excited to get you started”, and “I love my job here and I know you will too”.
Phone calls when needed should be gracious and helpful. This is not the job for a person who has been at the company for 25 years and is bitter and impatient.
As you look at this information – what are you doing well at your company in this process and what might need to change? Seeing that 91-93% of new hires feel it is fine to quit right away – it is important for you to strategize to get this right.
As always, our teams at Innovative Outsourcing and tHRiving: HR for Small Business can help you and your leadership with a plan to make this world class in your company.
If onboarding is just one area that needs assistance, consider our HR Audit. We will assess your current HR practices and give you a report of what is needed to be successful in the 12 different areas of HR. This service starts at $2,400 and goes up to $4,500 based on size and complexity.
Urgent HR Compliance Update: New Versions of Workplace Posters
Urgent HR Compliance Update: New Versions of Workplace Posters
Usually, we talk about items like retention and hiring, but today we are diving into the compliance side of HR. Karen Moss, our HR Expert, provides details on what you need to know! Karen, take it away:
Due to new rights granted under the Pregnant Workers Fairness Act (PWFA) and the Providing Urgent Maternal Protections for Nursing Mothers Act (PUMP Act), employers must display a new version of workplace posters.
Pregnant Workers Fairness Act:
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This new law went into effect on 6/27/23.
It requires covered employers (15 or more employees) to provide "reasonable accommodations" to a worker's known limitations related to pregnancy, childbirth, or related medical conditions unless the accommodation will cause the employer an undue hardship.
Reasonable accommodations might include assigning light duty, permitting more frequent bathroom breaks or allowing pregnant workers to drink water at their workstations.
Other accommodations under the PWFA might include:
The ability to sit at a workstation.
Closer parking.
Flexible hours.
Appropriately sized uniforms and safety apparel.
Additional break time to use the bathroom, eat and rest.
Leave to recover from childbirth.
Reassignment from activities that are strenuous or involve exposure to compounds not safe for pregnancy.
In addition to this new law, another law called Providing Urgent Maternal Protections for Nursing Mothers (PUMP Act) went into effect 12/29/22.
The Pump Act requires employers to provide a reasonable break each time a nursing employee has a need to express milk for one year after the child's birth. Employers must provide a place, other than a bathroom, that is shielded from view and free from intrusion in which the employee can pump.
Companies with fewer than 50 employees can be exempt from the PUMP Act's provisions if they demonstrate compliance would impose an undue hardship.
Georgia has had its own Lactation Break Law which became effective on 8/5/20. The Georgia law applies to all employees, requires break time to be paid and does not contain a one year time limit on granting of lactation breaks.
Here also are links to our podcast where we explain more about it:
If you have any questions, please feel free to contact our tHriving team.
The Hiring Cheat Sheet for Employers
The Hiring Cheat Sheet for Employers
Hiring is not easy. Gone are the days when candidates "are lucky to get an offer". In this job market, you are still fighting for candidates. We want to make sure you have the upper hand on your competition.
Over the last month in this Newsletter, we have gone over some key insights from our Innovative Outsourcing team in depth. We have talked about the preparation, the best practices when a candidate is onsite, and how to offer your chosen candidate that sets you apart.
Most likely, you have not been able to read all of those suggestions, so we decided to put it all here in our Hiring Cheat Sheet for Employers. Here it is:
The Preparation for the Interview:
Tip #1 - Let the Candidate Know What to Expect
No one wants a surprise. No one wants to wait around and wonder what comes next. So, tell your candidates at the very beginning of the process what is likely to happen. This can help to alleviate any anxiety they may have and ensure that they are well-prepared.
Tip #2 - Get the Logistics Right
Ensure that parking, reception, and other logistics are in order. This will help to create a smooth and seamless experience for the candidate, and also ensure that they arrive at the interview feeling relaxed and focused. You would think this is self-explanatory. However, we hear from candidates all the time about how there was no direction and they did not know where to go.
Tip #3 - Don’t Overload the Candidate
As you plan the interview day, here are some tips:
Plan on the interview being around 30-45 minutes.
Plan on interviews never being more than a 3-1 ratio (interviewers to interviewee). Large panel interviews just don’t work well and totally stress the candidate. We get the feedback that it feels like a firing squad when there are more than 3!
Plan for a break with a snack or coffee if the person will have multiple interviews.
Tip #4 - Be Prepared
We always tell the candidate to be prepared but the interviewer should be as well! Here are some easy items to check along the way:
Make sure you have reviewed the resume and highlight a couple of interesting things.
Look at their LinkedIn to see what you might have in common.
Have 2-3 questions written about their background and 2-3 more questions to help you determine culture fit and skills fit!
If you want more in-depth examples and stories for Interview Prep, here is the link to the Newsletter on it - Onsite Interview Guide for Employers: Preparation for the Candidate
Onsite Interview Guide for Employers
Tip #1 - Don’t Tell the Candidate Everything Bad About Your Company
We agree that it is crazy we need to remind people about this, but we do. An old strategy was to let them know the good, bad and the ugly. Focus on the positive aspects of the company and the role.
Tip #2 - A candidate can catch your love for the company.
Tell the candidate why you love working there and sell them on the company! It is important to show the candidate why your company is a great place to work and to create a positive and engaging environment.
Tip #3 - Be On Time
It is essential to be punctual and ready to start the interview at the scheduled time. Being late can create a negative impression and may cause the candidate to feel disrespected.
Tip #4 - Shut Off Your Phone and Your Computer During the Interview
We get it - you are important and things are happening. However, the number of interviewees that get turned off by interviewers who are “not paying attention” is a large one.
Tip #5 - Pay Attention
It is important to engage with the candidate and show genuine interest in what they have to say. Actively listen and ask follow-up questions to gain a better understanding of their skills, experience, and potential.
Tip #6 - Quit Asking Impossibly Hard Questions
Avoid asking unnecessarily difficult questions. While it is important to assess the candidate's skills and experience, it is equally important to create a comfortable and non-threatening environment.
Tip #7 - Next Interviews Need to Happen Quickly
If you determine to bring the candidate back in for a follow up interview, plan that for the next couple of days. You have a very high chance of losing your candidate if that next interview isn’t FAST.
These are some tips while the candidates are in the office for an interview. If you want more depth, here is the link to the Newsletter for Onsite Interview Guide for Employers.
Best Practices When Making an Offer to a Candidate
Tip #1 - Call the Candidate with Excitement!
The hiring manager (or CEO if appropriate) needs to call the candidate with excitement! This is the moment that the candidate has been waiting for, and it's important to create a positive and enthusiastic experience for them. By conveying your excitement and interest in the candidate, you are more likely to create a positive impression and increase the likelihood of acceptance.
Tip #2 - Put an Offer in Writing that Same Day
The offer should come on the same day and preferably within an hour of the phone call (not before the phone call - that is not recommended at all!). This provides the candidate with the necessary details regarding the offer, such as salary, benefits, start date, and other relevant information. This also shows the candidate that you are organized, professional, and value their time.
Tip #3 - Meet or exceed their salary expectations
Don't offer less than they thought was coming. If you have discussed salary expectations with the candidate or posted a range, it's important to ensure that the offer meets or exceeds their expectations. Offering less than what they anticipated can create a negative impression and may cause the candidate to reconsider their interest in the position. Even if they take the job at the lesser rate, you have communicated to them that they weren’t even good enough for the lower end of the range and you will be starting off poorly.
Tip #4 - Keep communicating!
If there is much time between offer acceptance and start, continue to communicate with the candidate. This can include sending them a company t-shirt, newsletter, or welcome emails from staff. This helps to keep the candidate engaged and excited about the opportunity to work with your organization and may squash any other offers that may be coming in behind yours. Surprise and delight them with gifts, communication, excitement from current team members, etc. It doesn’t cost much - but is important if there is more than a couple of weeks prior to their start date.
In Conclusion...
We would love to talk to you about your hiring process. We coach our clients through every step when we work with them in recruiting. It’s just part of what we do and why our clients like to work with us! Our survey scores are 5 out of 5 on the client and candidate side. We know that sounds like bragging, and it is. Hiring and HR is what we do best!
Here are some links to learn more about Innovative Outsourcing, our podcast HR Ins and Outs for Small Business Podcast, and tHRiving: HR for Small Business
Benefits Needed for Retention and Hiring in Small Business
Benefits Needed for Retention and Hiring in Small Business
In today's job market, offering attractive employee benefits has become more important than ever for small businesses. While salary is certainly a factor, it is often not enough to retain top talent. In this article, we will explore six benefits that small businesses should consider offering to attract and retain employees.
1. Offer Highest Salary in Industry (Responsibly, but not everyone can do this)
While it's true that money isn't everything, offering competitive compensation is important in attracting top talent. If your business is able to offer the highest salary in your industry, this can be a major selling point for potential employees. This means you might not have to focus on other benefits as much
2. Great Health Benefits (No Co-pay, for example)
Health benefits are a key factor in employee satisfaction. Offering great health benefits with little to no co-pay can make your business stand out. It can be a significant expense for small businesses, but it can also be a valuable investment in your employees.
3. Lots of PTO (4 Weeks +)
Paid time off (PTO) is a highly valued benefit for employees, especially younger candidates and employees. Offering four weeks or more of PTO can be a great incentive for employees to stay with your company. Additionally, it can help with employee burnout and improve overall morale.
4. Hybrid Location (1-2 Days a Week from Home)
The pandemic has changed the way many of us work, and a hybrid work model has become increasingly popular. Allowing employees to work from home one or two days a week can be a great way to offer flexibility and work-life balance.
5. Flexible Time (Can Come in 10-6, 9-5, 7-3, for Example)
Offering flexible work hours can be a game-changer for employees. Not everyone works best on a traditional 9-5 schedule, and offering flexibility can help employees better balance their work and personal lives.
6. 5 Hours a Week of Leadership/Skills Development
Investing in your employees' professional development can be incredibly valuable. Offering five hours a week of leadership or skills development can help your employees grow in their careers, while also demonstrating your commitment to their success.
In conclusion, offering competitive benefits is crucial for small businesses to attract and retain top talent. Consider implementing one or more of these benefits to create a more attractive workplace for your employees. By investing in your employees, you can create a more productive and loyal workforce.