EXTENDED OVERTIME REGULATIONS
In May, the Department of Labor unveiled new overtime regulations. The biggest change — and the one that will impact retailers the most — is the nearly doubling of the salary threshold that entitles most salaried workers to overtime pay from $23,660 to $47,476, which is based upon the 40th percentile of the lowest-wage region, the South. The previous cutoff was set back in 2004. (The rule also raises the “highly compensated employee” threshold from $100,000 to $134,004).
It is estimated that 4.2 million workers will qualify for overtime pay under the new regulations, although some put the figure even higher. Automatic updates will be issued every three years.
The new rule is set to go into effect on Dec. 1, 2016. But retailers and restaurant owners should act now to get a handle on the structural and budgetary impact of these changes. Here are some initial steps to take from Dena H. Sokolow, a shareholder in the Tallahassee, Fla., office of Baker Donelson:
1. Identify employees who will need to be reclassified, i.e., current employees who are exempt but are paid less than $47,476 annually. Commissions and employer-provided benefits will not count toward the salary threshold.
2. Determine the number of hours these employees work. This seems simple, but exempt employees are not required to track their hours and, therefore, employers may not be fully aware of the hours an exempt employee is working. You also will want to look at waiting time, meal and rest periods, training time, travel time and other possible “hidden overtime.”
3. Sit down with your finance folks. Calculate the feasibility and costs of raising the pay of your currently exempt employees to the new threshold level versus reclassifying employees as nonexempt and paying overtime versus lowering pay to offset the overtime requirement. Projecting these costs now will assist you in deciding the course of action you want to take once the rule is final.
4. Identify how much time managerial employees are spending on particular tasks. Review job descriptions and tasks of impacted positions to determine if certain exempt tasks may be reassigned or maintained with the current position.
5. Consider how pay changes or other changes in job assignments may impact your organization. Will you need to make process or structural changes to accommodate, for example, exempt and nonexempt employees who will have the same job title? Will benefits need to be changed? Will policies need to be altered?
6. Develop administrative plans to ensure compliance when the regulations become official. Analyze whether any company policies — including policies that only apply to managers and pay policies — will be impacted and need to be changed. This means you will need to prepare and train all levels of management.
7. Negative employee morale is a big concern. Reclassifying managers and requiring them to track their time will likely be met with resistance. It is important to have a unified message to employees on how and why changes are going to be implemented. It also is a good idea to have a plan for following up with employees and monitoring their compliance with the new policies. The key message to employees should be that these changes should not result in a decrease in pay and are required by law.
8. Check your time-keeping methods and ensure that they are sufficient for the additional employees who will now be required to use them. Accurate data collection will be an essential part of complying with the proposed Fair Labor Standards Act overtime rule changes.
9. Take this golden opportunity to address wage and hour issues without calling attention to them. Now is the time to determine if employees are properly classified as exempt, and make any needed corrections.
10. Lastly, and most importantly, do not hesitate to seek legal help to ensure compliance and help maneuver through the DOL regulations and classification changes. These rules are complex, and there are serious financial consequences if you are found to be in violation of them.
The DOL’s budget for fiscal year 2017 includes $277 million for wage and hour division enforcement, an increase of $50 million from fiscal year 2016. Once the rule is finalized, the DOL will send out its auditors to ensure that employers are in compliance.
Dena H. Sokolow, a shareholder in the Tallahassee, Fla., office of Baker Donelson, brings more than 20 years of experience counseling and defending employers and management on a wide range of labor and employment matters.