By Julie Eisenhauer, CPA
The Final Rule on overtime, which the Department of Labor (DOL) announced in May, enables employees to qualify for overtime pay more easily. Though the overtime rule has been a source of great confusion amongst employers for some time, the July proposal incited a great deal of speculation as to how it might affect their businesses. The recent DOL announcement brought that speculation to an end. If your company hasn’t already started planning for this change, it would be wise to begin now; the effective date is December 1, 2016.
The DOL’s Final Rule defines the exemptions for executive, administrative, professional, outside sales, and computer employees under the Fair Labor Standards Act. Up to this point, employees who performed managerial or professional duties and earned more than $23,660 per year, or $440 per week, were exempt from overtime. The Final Rule, however, increases that salary threshold to $47,476 per year, or $913 per week. Further, according to the Final Rule, “overtime” is not limited to the office or the workplace. Time spent telecommuting, on company business, or on electronic devices (i.e., checking and responding to work email on mobile phones) is also considered time spent performing work duties.
The Final Rule also amends the salary basis test, allowing employers to use nondiscretionary bonuses and incentive payments, including commissions, to satisfy up to 10% of the new standard salary level.
According to many experts, these changes will be felt most in retail, hospitality organizations, not-for-profit organizations, and among middle managers. All told, the DOL predicts that the new salary threshold could result in as much as $1.2 billion in additional overtime pay during its first year in effect.
Final Rule Presents Big Challenges for Companies
As for the way it may affect companies, the Final Rule has implications beyond overtime payment. Money that is used to cover additional overtime, for example, has to come from somewhere within the company. This means that employers may need to take actions to reduce expenses elsewhere. Some employers may decide to reduce fringe benefits – or even reduce employee raises – in order to offset those additional costs for newly covered employees.
Then there’s the issue of employees who telecommute, or use electronic devices outside of company offices. Since employees do not have access to time cards while at home or on the go, it becomes difficult to accurately gauge the amount of time an employee works. To combat this problem, companies could decide to establish policies not allowing non-exempt employees from accessing company computer systems outside of the office. Alternatively, they could invest in new timekeeping technologies and processes.
What Should Companies Do?
You should begin by identifying the employees affected by the Final Rule. Evaluate whether your management and professional employees meet the “primary duties” test for exemption under the overtime rule. For those salary employees who will now be classified as non-exempt, begin keeping track of work hours immediately to determine how much overtime you’ll likely have to pay in the future.
Evaluate the salary threshold versus overtime pay for every employee. Be sure to consider bonuses, commissions and incentive pay in calculating the employee’s salary and rate of pay.
Communicate clearly with your employees about how and why company policy is changing and how the DOL’s action will affect their pay.
Review your payroll processes and systems to ensure they are aligned with the Final Rule. Determine if your payroll systems are set up to accurately track hours worked for all non-exempt employees including break times. Consider revising employee manuals to include policies over checking emails or voice messages while working off-site. Evaluate and revise current job descriptions based on the results of your analysis of employee “primary duties” test.
Clark Nuber will continue monitoring the latest news surrounding the Final Rule and all other relevant employment issues, and will share timely updates with you.
Read the full news release and access more information from the DOL.
Employers have options for compliance with the new overtime regulations – whether it be raising salaries to maintain exemption, requiring managers to keep track of hours worked, or paying overtime or managing hours worked of non-exempt employees. Clark Nuber can assist you in evaluating your options and identifying an implementation plan that is right for you. Feel free to share this update with your HR and management teams to help them prepare for the new regulation. If you have questions, please contact us.
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