Breaking Down New Overtime Regulations

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The new Department of Labor overtime rules initiated by President Obama become effective December 1 and definitely will cause employers to pay more employees for overtime work.  Employers are scrambling to figure out which employees will be exempt from the new overtime requirements and to figure out how to cope with these drastic changes.  Even more concerning is that employers who are now auditing their pay practices for future compliance are finding that they have previously exempted certain classifications of employees from overtime improperly – thereby exposing the surprised employers to possibly two years of back overtime payments with double damages.  Approximately 4.2 million U.S. workers will lose their overtime exemption status December 1 at an estimated cost of $12 billion in additional overtime payments in the next ten years.  On Memorial Day weekend of 2016, President Obama announced that “This is the single biggest step I can take through executive action to raise wages for the American people.”

Currently, in order to be considered exempt from the minimum wage and overtime requirements of the Fair Labor Standards Act, employees must meet certain minimum requirements related to their primary job duties and, in most cases, must be paid on a salary basis of not less than $455 per week ($23,660) per year.  Under the new Regulations, employees must not only meet the same job duties test, but also must be paid at least a salary of $913 per week ($47,476 per year), or $134,004 annually for employees exempt as highly compensated.  The primary exemptions from the overtime requirements are known as the While Collar Exemptions – Executive, Administrative and Professional.  The Executive exemption relates to supervisors and managers directing the work of at least two full-time employees or equivalent and having the authority to hire, fire or effectively recommend such.  The Professional exemption primarily pertains to individuals with advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction – doctors, lawyers, architects and engineers.  The third and most problematic exemption is the Administrative exemption.  Employees performing office or non-manual work related to management or the general business operations of the employer, and who exercise independent judgment with respect to business matters of significance are exempt.  These are the employees who assist in running the business as opposed to carrying out the day-to-day business.  They exercise independent judgment and discretion in making decisions for their employer and have the authority to commit their employer.  For example, secretaries generally would not enjoy the exemption, but an executive assistant may.  An HR manager may enjoy the exemption, but an HR specialist processing employment applications and I-9 forms would not.  In any audit performed by an employer, it should focus on those currently cloaked with the Administrative exemption.

Employees who will now lose their exemption will be required to keep accurate records as to hours worked, will have their

Before the Department of Labor knocks at your door, perform a self-audit with the assistance of Labor and Employment Law counsel and take the following actions:

  • Review the exempt status of employees – especially Administrative and those currently making less than $913 per week.
  • Develop a list of employees and job classifications with questionable exempt status and analyze the job descriptions and duties actually performed.
  • For those possibly losing the exemption, start tracking work hours now to determine the possible expense of overtime.
  • Consider realigning job duties of soon-to-be non-exempt in order to make them exempt.
  • Change job duties to reduce work hours or increase work hours of others to avoid overtime.
  • Consider hiring part-timers to lessen the overtime of existing employees.
  • Devise a timekeeping system for soon-to-be non-exempt employees with the supervisors and employees signing off each week as to accuracy of reported hours.
  • Consider reducing the wage rates and benefits accorded to soon-to-be non-exempts to offset the overtime anticipated to be paid.
  • Establish work hours, lunch, and break schedules for the soon-to-be non-exempt.
  • Devise work rules regulating off-duty work, such as at night and on the weekend.
  • Rewrite PTO policies to include soon-to-be non-exempts.
  • Adjust your payroll budgets for these additional expenses.
  • Make a presentation to the affected employees and explain that these changes are government mandated – those losing their exempt status flexibility will not be happy.

With the Department of Labor audits already on the rise and with the publicity these new overtime regulations are receiving, employees will certainly question their entitlements to overtime.  Get ahead of the curve and ensure compliance now.

While several business groups have filed a federal court case to stop the implementation of the new rules, anticipate that the case will not stop the basic regulations from becoming effective.  But, watch to see if the new Congress and President take action in early 2017.

For additional information, contact attorney Bob Dunlevey, OSBA Board Certified Labor and Employment Law Attorney at (937) 223-6003.

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