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New Overtime Rules Will Challenge Employers

Posted by Tom Jones on May 18, 2016 9:22:09 AM

The U.S. Department of Labor will issue a final rule today that will soon make more than four million workers eligible for overtime. The measure has profound implications for employers.

Fourpeople.jpgThe new rule doubles the salary threshold—from $23,660 to $47,476 per year—at which exempt or managerial workers become eligible for overtime. Non-exempt (hourly) workers are generally guaranteed overtime pay regardless of their earnings level. The rule will take effect on December 1.

The new salary baseline is slightly lower than the initially proposed white-collar exemption threshold of $50,440.

The threshold level will be automatically updated every three years. According to information released by the White House , the updates to the new minimum exemption will be set at the 40th percentile of full-time salaried workers in the lowest income region of the country.  Based on projections of wage growth, the threshold is expected to rise to more than $51,000 with the first update on January 1, 2020.

Employees earning more than the salary cap will still have to pass the “duties test” - showing that they primarily perform executive, administrative or professional tasks - to be classified as exempt from overtime.

The exemption for highly compensated workers will change from $100,000 annually to $134,004. A highly compensated employee must perform office or non-manual work and be paid total annual compensation of $134,004 or more (which must include at least $913 per week paid on a salary or fee basis) and customarily perform at least one of the duties of an exempt executive, administrative or professional employee identified in the standard tests for exemption.

There are no changes to the outside sales provision or the computer professional exemption. To meet the computer professional threshold, the employer must show that the employee is compensated either on a salary or fee basis at a rate not less than $455 per week or, if compensated on an hourly basis, at a rate not less than $27.63 an hour and the employee must be employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the duties outlined in the regulations.  

Analysts believe the new overtime rules may prompt companies with exempt employees earning less than the proposed threshold of $47,476 per year ($913 per week) to reclassify those people as hourly workers. That change not only presents potential morale issues for employees who may consider the reclassification as a demotion, but also raises a host of issues for employers:

  • Payroll practices education (punch a clock, overtime rules)
  • Individual time management and work stopping at a set  time
  • Educating management on their staff and legal aspects of exempt versus non-exempt status
  • Rewriting job descriptions / salary structures
  • Career path changes
  • Effective workload levels – hiring incremental temps, part-time, full-time
  • Curfew on after-hour emails by non-exempt staff
  • Any benefits/bonus eligibility impact
  • Calculating travel time between locations or when required to report to an alternative location by a certain time
  • Calculating time for required travel on non-work days

Employers can start the process of adjusting to the new rule by asking some of the following questions:

  • Do you have any highly compensated employees under proposed threshold of $134,004?
  • Do your exempt employees affected by this proposal currently work more than 40 hours per week?
  • Do your exempt employees affected by this proposal work remotely all or part of the time? If so, you’ll need to effectively track hours to ensure all hours are accounted for and paid.
  • Have you tracked exempt employee workload within the 40 hour work week? If a conversion to an hourly employee is required, do you have metrics to substantiate a 40 hour workweek?
  • Have you addressed any budget or impact on pricing as it relates to any increased labor costs?
  • Have you initiated planning for automatic increases to the exempt salary threshold beyond 2016?
  • Have you considered the increase in number of hourly versus exempt employees and any union organizing concerns?

Register for the AIM Overtime Seminar

Topics: Employment Law, Human Resources, Fair Labor Standards Act

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