New overtime rules announced. Millions of employees impacted. Are you ready?
By Laurie E. Meyer & Bruce B. Deadman
(November 23, 2016)
Original May 2016 article:
On Tuesday, May 17, the Department of Labor (DOL) announced new rules on overtime pay, fulfilling President Obama’s 2014 promise to raise the salary level at which employers are required to pay overtime. These changes will have wide impact for virtually all profit and non-profit organizations, and the DOL estimates that almost 4.2 million U.S. workers who are currently exempt will now be eligible for overtime compensation under the new salary level requirements. The rules provide that employers must implement these changes by DECEMBER 1, 2016. It is critical that employers are ready to implement these changes in a timely fashion, as violations of these laws carry stiff penalties and often result in class or collective action litigation, governmental audits of pay practices, and/or personal liability to ownership and management.
The most important changes to the overtime exemption rules are:
- The rules more than double the salary threshold for the so-called “white-collar” or “EAP” (Executive, Administrative, Professional) exemptions to overtime pay requirements from the current $455 per week ($23,660 per year) to $913 per week (or $47,476 annually for a full-time employee).
- The salary threshold for the “highly compensated” employee exemption will increase from the current $100,000 to $134,004 annually.
- The new rules allow employers to count nondiscretionary bonuses and commissions to satisfy only up to 10% (or $4,747) of the minimum salary level. Such bonuses or commissions may only count toward the threshold if they are paid quarterly or more frequently. (Hence, bonuses or commissions that are paid annually may not be used, even if they are nondiscretionary).
- In addition, the final rule includes an automatic adjustment provision requiring that the salary thresholds be adjusted every three years, beginning January 1, 2020. Presumably, these adjustments will be tied to cost of living measurements.
Much of the FLSA remains unchanged:
- Employees must still also meet a “duties” test to qualify for the Executive, Administrative, and Professional exemptions. Thus, it is not enough to simply pay an employee a salary at or above the new threshold. Certain employees—for example, secretaries or paralegals, bookkeepers, inside salespeople—are not exempt from overtime even if they are paid salaries of over $913 per week.
- Specific exemptions for certain designated job categories remain the same. Doctors, lawyers, most teachers, bona fide “outside” sales employees, and certain computer professionals remain exempt from overtime and the new minimum salary thresholds do not apply to them.
As these new rules have to be implemented by December 1, here are some important considerations for all employers to think about NOW.
The first question every employer must answer is whether it has any employees who are treated as exempt from overtime but who are paid salaries of less than $913 per week. If so, the employer must decide how it will respond. The range of responses includes:
- For employees who are paid salaries just under the new threshold, should those salaries be raised? If so, will salaries “up the chain” be raised as well?
- For employees who are re-classified from exempt to non-exempt from overtime, should they continue to be paid a salary or on an hourly basis? Non-exempt employees who are paid a “salary” for hours less than 40 in a workweek must still be paid at a rate of time-and-one-half their regular rate of pay for hours over 40 in a workweek.
- If an employee previously classified as exempt regularly works more than 40 hours per week, will the employer lower the “base” pay in order to allow for overtime and keep total compensation approximately the same?
- Will the employer prohibit or restrict overtime hours by previously exempt employees without explicit approval from management?
- Where several employees are impacted does it make sense to reorganize the department or work to spread duties between more employees or to otherwise distribute work to decrease the number of hours worked by previously exempt employees?
- Public sector employers may wish consider the use of compensatory time to mitigate some out of pocket costs.
Other considerations include:
- Is there a time and attendance tracking system in place that will capture all hours worked by newly non-exempt employees?
- For newly non-exempt employees who may have become accustomed to a certain amount of flexibility in their workweeks and time management, how will the employer ensure that all of their work time is tracked and compensated? Should telecommuting or occasional work-from-home be eliminated or curtailed? Should access to email and voice mail be restricted during non-work hours? If not, what steps will the employer take to ensure that employees track all time worked?
- Will the employer deal with increased budgetary costs in other ways? Will the employer adjust bonus or fringe benefit programs or policies?
- How will the employer effectively communicate all of these changes to its employees? Does it have a plan in place to train its managers on these changes and what they mean?
Our Labor and Employment Team has carefully studied the rule since it was first proposed, and is prepared to assist employers in developing implementation and communication strategies. Please contact your Davis & Kuelthau attorney with any questions or contact the authors, Laurie Meyer at 414.225.1419 / firstname.lastname@example.org or Bruce Deadman at 920.431.2228 / email@example.com.
Complimentary Seminars Addressing the New Overtime Rules and Related Employer Opportunities:
- June 1, 2016. Davis & Kuelthau and employers from across the United States discussed the rules, related strategies, and considerations for implementation via webinar. Click here for the complimentary replay.
- June 2, 2016. Join us at BizTimes’ Media’s Family & Closely Held Business Summit in Milwaukee, WI where we will address this topic among many others currently impacting Wisconsin employers.
- June 15, 2016. Attend our co-hosted workshop with the Wisconsin Family Business Forum in Appleton, WI.
- November 22, 2016. Davis & Kuelthau labor and employment attorneys, Laurie Meyer and Robert Burns, along with immigration attorney, Hugo Rojas, participated in The Daily Reporter’s Competitive Advantage Breakfast Series, addressing Employment & Immigration Compliance for Construction Businesses. Click link below to view their presentation.
- March 1, 2017. Davis & Kuelthau labor and employment attorney, Hugo Rojas, presented, “Are You Ready for the 2017 H-1B Season? Current Issues and Trends in Preparation for the April 1st Filing Deadline!” via webinar. Click here for the complimentary replay.