Overtime Final Rule Could Have Far-Reaching Consequences
June 27, 2016
On November 22, 2016, a federal judge in Texas issued a nationwide injunction blocking the Department of Labor’s rule that would require overtime pay for millions of workers. The regulation was scheduled to take effect on December 1, 2016.
The Department of Labor’s (DOL) Final Rule on overtime announced in May makes it easier for employees to qualify for overtime pay. The announcement ended months of speculation about how the proposal, which was introduced last July, would affect employers. The overtime rule has long been a source of great confusion among employers, and changes to it have been anticipated for some time. If your company hasn’t already begun planning for this change, it would be extremely wise to start now.
The Final Rule, as the DOL calls it, defines the exemptions for executive, administrative, professional, outside sales and computer employees under the Fair Labor Standards Act. Until now, workers who earned more than $23,660 per year, or $440 per week, were exempt from overtime if they performed managerial or professional duties. Under the final rule, that salary threshold has been increased to $47,476 per year, or $913 per week. And overtime is not just time spent in the office or at the workplace; time spent telecommuting and/or on company business on electronic devices (i.e., on mobile phones checking and responding to emails) is considered in time spent performing duties.
The Final Rule also amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments, including commissions, to satisfy up to 10% of the new standard salary level.
Many experts say that the biggest impact of this change will be felt in retail, hospitality and nonprofit organizations, and among middle managers. All told, the DOL has predicted that the new salary threshold could result in as much as $1.2 billion in additional overtime pay during the first year that it is in effect.
Final Rule Presents Big Challenges for Companies
The Final Rule has implications beyond payment of overtime. For example, money spent on additional overtime must come from somewhere within a company, so employers may be forced to take actions to reduce expenses elsewhere. Some employers may reduce fringe benefits – or even reduce raises for employees – in order to offset those additional costs for newly covered employees.
Then there’s the issue of telecommuters, and specifically, employees who use electronic devices outside of the company offices. Literally or figuratively, there’s no clock to punch at home or on the go, so accurately gauging actual time worked could be difficult. In order to combat this problem, companies could bar non-exempt employees from accessing the company’s computer system outside of the office. Or, they could invest in new timekeeping technologies and processes.
What Should Companies Do?
Your first step should be to identify those workers who will be affected by the Final Rule. If you haven’t been keeping track of work hours for exempt employees, you should start doing so immediately in order to predict the amount of overtime you’ll likely have to pay in the future.
For each employee, evaluate the salary threshold versus overtime pay.
Communicate clearly to your employees how and why company policy is changing and how it will affect their pay as a result of the DOL’s action.
We will continue to monitor the latest news surrounding the Final Rule and all other relevant employment issues, and we will share timely updates with you as news breaks.
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