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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

New Overtime Rules a Triple Threat in Massachusetts

Posted by Christopher Geehern on Mar 12, 2014 11:01:00 AM

Massachusetts employers already under siege from federal health reform, proposed mandated sick time and campaigns to raise the minimum wage now have another front to monitor as the Obama Administration prepares to make millions of additional workers eligible for overtime.

Overtime RulesThe New York Times and other media outlets are reporting today that the president will direct the Labor Department on Thursday to change the classification rules and wage thresholds that determine overtime eligibility for many employees currently classified as executive or professional. White House officials say the new rules will require overtime pay for millions of currently exempt fast-food managers, loan officers, computer technicians and others whose responsibilities include both supervision and direct work.

The changes have significant implications in Massachusetts, where treble damages are mandated for violations of wage and hour laws.

“The stakes for Massachusetts employers could not be higher,” said John Regan, Executive Vice President of Government Affairs.

“Employers attempting to understand new overtime rules face the threat of punitive treble damages for honest mistakes or good-faith compensation disputes. This is exactly the sort of scenario that should prompt legislators to limit the 2008 treble damages law to willful violations.”

President Obama would expand overtime eligibility administratively under the federal Fair Labor Standards Act. The expansion would be accomplished in two ways, according to media reports:

  • The administration would increase the $455 per week threshold below which employers may not deny time-and-a-half overtime to a salaried worker. White House officials did not specify the new threshold level, but the Times notes that the former Chief Economic Policy Advisor to Vice President Joseph Biden co-authored a report last year that recommended raising the amount to $984 per week.
  • The administration would also tighten the rules under which employers define which workers are exempt from overtime pay based upon the type of work they perform. The new rules could require that employees perform a minimum percentage of “executive” work before they can be exempted from qualifying for overtime pay. “Under current rules, it literally means that you can spend 95 percent of the time sweeping floors and stocking shelves, and if you’re responsible for supervising people 5 percent of the time, you can then be considered executive and be exempt,” Ross Eisenbrey, a vice president of the Economic Policy Institute, a liberal research organization in Washington, told the Times.

Robert A. Fisher, a partner at the law firm of Foley Hoag in Boston and Chair of the AIM Human Resources and Employment Law Committee, said expanding overtime eligibility will not increase the take-home pay of hard working managers and supervisors.

“Suppose a manager makes $52,000 a year, $1,000 per week, and works an average of 50 hours per week,” Fisher said.

“An employer could just going to transform the individual’s pay into an hourly rate that with overtime mirrors $52,000, about $18 an hour.  It does not mean that the manager will take home more pay.  Alternatively, an employer could utilize more than one manager to avoid overtime.  The company could employ two managers at 25 hours per week, without benefits, at $20 an hour.”

The proposed overtime rule change represents the latest salvo in a broad campaign by the Obama Administration in Washington and the Patrick Administration in Boston to address what officials say is a growing income disparity facing American workers.  The White House and congressional Democrats are seeking a federal minimum wage increase from $7.25 to $10.10 per hour while the Massachusetts Senate recently approved a bill increasing the state minimum wage from $8 to $11 per hour over three years.

AIM and employer groups around the country expect to mount aggressive opposition to the overtime rule changes. The president’s proposals will be subject to public comment before they can be approved by the Labor Department, and AIM expects to seek comments from members during the process.

There are other Massachusetts connections to the issue as well. David Weil, a professor at the Boston University School of Management, has been nominated to lead the Labor Department’s Wage and Hour Administration, which would be responsible for implementing the overtime rule changes. Weil is awaiting confirmation for the post, which has been vacant since Obama took office.

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

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