Plan Sponsors Struggling to be FLSA Compliant

June 28, 2004 ( - August 23 looms large on the radar screen of plan sponsors rushing to be compliant with amendments to the Fair Labor Standards Act (FLSA), yet a surprisingly large number of companies do not appear prepared for the new regulations to take effect.

Overall, 20% of the 150 companies polled by Hewitt Associates said they will not meet the late-August deadline for compliance, while 23% said they will meet the required date, but only with additional resources allocated to the effort. Among those that need more time, the median is an additional 80 days beyond the deadline.

The rush to compliance came in April, when the Department of Labor (DoL) announced updates to the “white-collar exemption regulations” to section 541of FLSA (See DOL Releases FLSA Changes ). Under the final regulations, workers making less than $455/week ($23,660/year) will be guaranteed overtime protections regardless of job duties. This is a boost from the initial threshold levels that were being circulated of $425/week (about $22,100/year) and a significant boost to the old rules that only provided overtime protections to workers making less than $155/week (about $8,000/year). The new regulations also provide guarantees to certain classifications of workers that previously were not guaranteed overtime protections.

Asked what the largest hurdle is, 26% of companies said existing job documentation is old, incorrect or inconsistent, while another 24% said their primary issue is with understanding the new rules. Occupations presenting the greatest classification problems are IT (57%) and shift/production supervisors (42%), employers told Hewitt.

One reason for the outdated job data is the lack of FLSA audits in the past. Forty-six percent of companies said they had FLSA job audits in the past three years only as required (upon challenge), while 45% said these audits were not conducted regularly. Going forward, 75% have no formal plans or don’t yet know how often they will conduct FLSA audits in the future.

“Many companies have a considerable road in front of them, as they need to sort through existing job titles and codes before they can determine what needs to be done with the new FLSA regulations,” said Tom Farmer, senior consultant for Hewitt Associates. “Organizations have to ensure that they properly classify positions by employees, examine variations in job duties by department and clarify overly generic job titles. This is a daunting task, especially as we pass the halfway mark to comply.”

The new FLSA regulations will have financial implications as well, but most companies have not yet determined those costs. Hewitt found 65% of organizations do not know how the new FLSA legislation will affect their payroll, and 81% said they are unsure of the general administrative costs involved in complying with FLSA.