Overtime Final Rule exemption is scarier than the office Halloween party.
Employers who haven’t been preparing for the December 1st overtime Final Rule makeover might just as well be prepared to be frightened and ready to miss Thanksgiving dinner, the in-laws and football. Business owners could be very busy.
The May 18, 2016 overtime Final Rule defines which white collar workers are protected and paid “a fair day’s pay for a hard day’s work.” Employers have until December 1, 2016 to have it figured out, up and running and compliant so the estimated 4.2 million affected workers don’t get bent out of shape and report their employers to the DOL. The DOL predicts that any possible savings or earnings to anybody could be eaten up by legal fees. That might be great for lawyers who are generally considered exempt.
This isn’t to say that business owners want their employees or themselves to have a hard day’s sleepless night, but the mechanics of redefining job descriptions, restructuring pay options and rebuilding business plans are going to be difficult for everybody. Nobody wants change, but let’s just lay it on the table–things are changing, so get a grip.
There are less than two months before these regulations take effect and employers will be required to comply. Here is a short overview of the Final Rule which goes into effect on December 1, 2016, and increases the salary threshold for the overtime exemption to $913 a week for a full year worker. This is up from $455 a week; and could leave business owners trying to make some quick changes to what may have been considered their 2017 business plan.
What is the first thing a business owner should do?
Determine whether this overtime Final Rule applies to their business. DOL Wage and Hour Division tells us that employees who work for certain businesses or organizations (or “enterprises”) are covered by the FLSA. These enterprises, which must have at least two employees, are:
- those that have an annual dollar volume of sales or business done of at least $500,000,
- hospitals, businesses providing medical or nursing care for residents, schools and preschools, and government agencies. DOL’s Fact Sheet #14
Which workers are protected and paid by the overtime Final Rule?
Nonexempt white collar employees make up most workers covered by the FLSA and they are entitled to overtime pay. Rather than describing all these nonexempt employees, it’s often easier to spot exempt workers by their severely starched shirt or blouse, and the fact that they are outnumbered by nonexempt workers with more creative wardrobe options. Here are some more clues to spotting exempt workers who cannot be paid overtime:
- They must be paid at least $47,476 per year ($913 per week);
- they must be paid on a salary basis;
- they must perform certain DOL exempt-defined jobs, usually defined as Executive, Professional or Administrative;
- the tasks they perform, rather than just the job title, must meet certain definitions and fit properly into the employer’s overall business operations; and
- they must meet many pages of DOL details defining these factors.
What should employers do right now?
- If you’re not already tracking hours worked by exempt salaried employees who are at or below the $47,476 threshold, begin now.
- If you are a smaller company based in a rural area with exempt salaried employees in the $30,000 to $49,000 range, sit down (or pace while you read) and review your year-end tax strategy effecting 2017 budgeting. Paying overtime could cause small business owners to revise previously anticipated growth and operational plans.
- If your small business workforce is made up of a high number of hourly and seasonal employees, your vulnerability to being adversely affected is high. Priorities should include preparing for your next seasonal rush.
- If your business has just a few employees, some being vital managers or workers with occasional expected and necessary long weekly workloads, start looking at budget reallocations if vital managers or workers are no longer over the exemption threshold.
Anything more specific?
- Accurately track hourly data for all employees and keep a clear audit trail.
- Define job descriptions. Evaluate existing time data, gather more, and compare these findings against your expectations. Get busy, you’re running out of time!
- Be up front with your employees. The DOL’s overtime Final Rule is public knowledge and your employees are paying attention. They want, and have the right to know how they could be affected by your decisions. Honesty is still the best policy and that’s always a good, solid business principle to follow.
- Stick with this basic rule of audit which I loosely translate into, “Say what you do and do what you say.”
This isn’t the DOL’s final world on their overtime Final Rule.
For each affected employee newly entitled to receive overtime pay, the DOL offers the business owner some options, but surely not their final word:
- increase the salary of an employee who meets the duties test to at least the new salary level to retain exempt status;
- pay an overtime premium of one and a half times the employee’s regular rate of pay for any overtime hours worked (in excess of 40 hours in a week)
- reduce or eliminate overtime hours;
- reduce the amount of pay allocated to base salary (provided 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.
What’s the bottom line?
This barely scratches the surface of the DOL’s overtime Final Rule, but it’s a start. If you’ve had enough of the DOL, try wrapping your brain around the latest SNL skit, Halloween, Thanksgiving, weird friends, great friends and last-minute Christmas shopping. That should do it. DO…what?
If you have any questions or if you aren’t even sure if your business could be affected by the DOL’s overtime Final Rule, these are good reasons to contact us. We can help you. This is what we do.
DOL Says a lot. Here it is