New white collar overtime exemption rules are coming, now what?
On December 1, 2016, employers will have to pay more to take advantage of the so-called white-collar overtime exemptions from the Fair Labor Standards Act (FLSA). To prepare for the upcoming change, employers need to know if and to what extent they will be affected by the new overtime exemption regulations.
The new rules focus primarily on the minimum wage and compensation levels necessary to qualify for the FLSA’s executive, administrative, professional, and IT employee overtime exemptions. Employers can ask the following questions to determine the potential impact of the new overtime rules before it is too late.
Are any employees classified as exempt under one of the FLSA white collar overtime exemptions? If not, he shouldn’t be affected by the higher standard salary levels under the new rules. If yes, go to the next question.
Have any of these employees ever worked more than 40 hours in a work week? If not, he shouldn’t be affected by the higher standard salary levels under the new rules. If yes, go to the next question.
Do any of these employees earn a salary of less than $913 per week? (This equates to $1,826 biweekly, $1,978 biweekly, $3,956 per month, or $47,476 per year.) If not, you shouldn’t be affected by the higher standard salary levels under the new rules. If so, the exemption classifications or compensation practices must be adjusted by December 1, 2016.
The most appropriate adjustments will generally depend on specific circumstances, such as the number of newly non-exempt employees, their wages, how often they work overtime, and the number of overtime hours they work. Depending on your situation, employers may decide to implement one or more of the following adjustments.
Increase wages. Perhaps the simplest and least disruptive adjustment would be to increase the wages of exempt administrative employees to no less than $913 per week. Unfortunately, it can also be unrealistic for many employers. While some salary increases may be small, others may be more than double.
Those who choose this option should remember that exempt status requires more than meeting the new minimum wage requirements. Primary job duties remain relevant under the new rules and employees must still meet the applicable “standard duties test” to be exempt.
Pay overtime compensation to recently non-exempt employees. The alternative to increasing wages is to reclassify these exempt employees as overtime-eligible employees. Those who work more than 40 hours in a work week must be paid one and one-half times their regular rate. Remember that employers must track daily and weekly hours worked by all non-exempt employees, including new non-exempt employees.
Paying overtime compensation may not be a problem for employees who rarely work or work very little overtime. Despite paying more for the occasional overtime, it would still be less expensive than raising wages. The same cannot be said for employees who work regularly or put in a lot of overtime. Your overtime pay can add up quickly, possibly approaching or even exceeding $913 per week.
Ban overtime. Newly non-exempt employees may be prohibited from working overtime. If no overtime is worked, no overtime compensation is required. This option may be simple, but it may not be easy. Exempt employees generally work more than 40 hours in a workweek because they have more than 40 hours of work to do. Your job still needs to be done, but someone else will have to do it.
Personal Adjustment, Schedules or Assignments. Those who prohibit overtime may have to make several operational adjustments. For example, workload distribution and workforce scheduling may need to be adjusted to compensate for lost overtime. In some cases, it may be necessary to hire new employees to make up for lost productivity.
Adjust wages. Newly non-exempt employees who are allowed to continue working overtime as usual will end up getting more money for the same amount of work. Reallocation of regular wages and overtime compensation is one way to keep hours worked and amounts paid to new non-exempt employees roughly the same. However, employers may not reduce an employee’s hourly wage below the highest applicable minimum wage (federal, state, or local) or continually adjust wages each workweek to manipulate the regular rate.
Employers shouldn’t wait too long to start planning. It takes time to change exemption classifications and compensation practices, particularly if they are substantial or complex. With all the publicity, it’s safe to assume that the violations will be noticed not only by those who are affected by the new rules, but also by the Department of Labor.
To guard against the uncertainty and confusion surrounding the new rules, employers can benefit from having employment practices liability insurance to protect against various employment-related claims. Limited coverage may be available for wage and hour claims.
Employers should discuss the new overtime exemption rules with human resources, payroll/accounting, managers and supervisors. Specific wage and hour training should also be considered. Please contact us if you would like more information on how to prepare for the new white collar overtime exemption rules.
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