After much anticipation, the Department of Labor (DOL) recently released a new rule which will change how employers compensate employees. Effective December 1, 2016, workers who earn above the previous threshold but below the new one will qualify to receive time-and-a-half for each hour they work surpassing 40 hours a week. An estimated 4.2 million salaried workers will become eligible for overtime pay under the new rule.
According to the DOL, the new rule will:
- raise the salary threshold at which white-collar workers are exempt from overtime pay from $23,660 to $47,476 per year;
- automatically update the salary threshold every three years, based on wage growth over time;
- strengthen overtime protection for salaried workers already entitled to overtime; and
- provide greater clarity for workers and employers.
It should also be noted that, under the new rule, an employee’s nondiscretionary bonus/incentive payments can count toward up to 10% of the salary threshold, provided that the incentives are paid on a quarterly or more frequent basis.
Job titles do not determine exempt status. In order for an exemption for overtime to apply, an employee’s specific job duties and salary must meet all the requirements set by Department of Labor regulations. If you are unfamiliar with the criteria, more details are available on the Department of Labor website (www.dol.gov).
Many businesses will be affected and must comply with the new rule. According to the DOL, “employers may:
- increase the salary of an employee who meets the duties test to at least the new salary level to retain his or her exempt status;
- pay an overtime premium of one and a half times the employee’s regular rate of pay for any overtime hours worked;
- reduce or eliminate overtime hours;
- reduce the amount of pay allocated to base salary (provided that the employee still earns at least the applicable hourly minimum wage) and add pay to account for overtime hours worked over 40 in the workweek, to hold total weekly pay constant; or
- use some combination of these responses.”
Below are four steps you can implement which will help integrate the changes successfully into your workflow.
- Review payroll and identify employees who are exempt. The first step is to review your payroll and identify who are currently classified as exempt employees whose salaries are below the new proposed thresholds for executive, professional and administrative white collar exemptions. You should also review the job duties of all employees who are currently classified as exempt to ensure that they meet the duties test under the Fair Labor Standards Act for their overtime exemption to be recognized.
- Consider which positions to transition to non-exempt status. Once you have reviewed your payroll and identified the employees who are exempt it will be essential to carefully consider which positions to transition to nonexempt status. Employers have two options: they can either increase the salary level to maintain an employee’s exempt status or transition the position to nonexempt status. When transitioning positions to a nonexempt status, ask yourself the following questions:
- What will be the basis for pay: hourly or salaried?
- Does this meet the minimum wage requirements?
- Will overtime be permitted? Is it necessary?
3. Evaluate timekeeping practices.
Anticipate more time to track for employees transitioning from exempt to nonexempt status. Establish a formal policy to help track and record time. The policy should define:
- What is considered time worked?
- How is overtime approved?
- Who approves overtime?
- What are the consequences for failing to follow the policy?
4. Communicate changes internally.
The final step is to communicate and educate staff of any policy changes. Don’t forget to include employees who are already nonexempt; they will also need a refresher. Communications and training programs must be timely. Consider having supervisors regularly review employee time-keeping practices to ensure employees are properly reporting their time worked.
Employers have a few months to prepare for the new rule. Our firm’s professionals can help you develop a strategy to ensure your business is in compliance. Call us today.