New Overtime Rules Will Soon Change the Way Many Companies Hire and Compensate Employees: Are You Ready?

April 16, 2016 by

Two years ago President Obama directed the U.S. Department of Labor (DOL) to “update,” “modernize,” and “simplify” the Fair Labor Standard Act (FLSA) regulations governing overtime for white collar workers. overtimeOn June 30, 2015, the DOL complied, proposing a massive shift in how lower paid white collar workers are classified. In fact, the shift is so dramatic that the DOL asserts that 5 million current white collar employees will obtain overtime protection in the first year of implementation. Employers have already considered the impact of this shift: To date, these proposed changes have received a whopping 293,389 comments as of April 19.

The DOL, empowered by the FLSA, governs a wide range of workers’ right, including overtime pay. The overtime rules simplified state that any employee working over 40 hours in a week should be paid 1.5 times his ordinary pay for the additional time he/she labors. However, the regulations provide for various exemptions from this default expectation. Some of these exemptions apply to employees who fall within the category of “white collar workers,” or workers performing administrative, executive, professional duties, or outside sales or computer employees. However, these white collar employees must also earn greater than $23,660 annually (or $455/week) to be considered exempt. The rules were last updated in 2004. In the DOL’s proposal, the $23,660 threshold will leap to $50,400. These changes are significant.

If you are a business owner, pay attention: Once the rules are expected to be implemented, your employees earning less than $50,400 annually are not eligible for these exemptions.

Here are 5 things business owners should consider before the rules are launched.

1. Analyze Your Current Employee Roster Now

It’s advisable that employers perform across-the-board audits of all employees. Create a list of positions, job titles, personnel, and salaries or hourly wages and evaluate risk at for each employee and classification.

2. Update Job Duties and Titles and Ensure They Match the Work Performed by Employees

In the event of an audit or an FLSA lawsuit, any written job duties and job titles will be closely scrutinized to determine whether they match the work actually performed. Employers should ensure these titles and duties fit the day to day work.

3. Don’t Fall for the Great Overtime Myths (Now or Later)

  • Simply placing someone on “salary” does not make an employee exempt. Other than a misunderstanding of employment at will and the enforceability of noncompetes, this may be the greatest misunderstanding I hear from small business owners.
  • Preparing the world’s best list of job duties that appear to make an employee exempt does not determine whether the employee is exempt.
  • The small size of your company does not make these regulations not apply to you.
  • Fancy job titles do not make an employee exempt.

4. Determine How to Handle Your Exempt Workers Earning Less Than $50,400

An employer is left with four clear options:

  • Do nothing;
  • Restructure the workforce, which could include layoffs;
  • Shift the employee to hourly status and monitor hours worked; or
  • Raise the employee’s pay to $50,400 or more.

Obviously Option A is off the table for any business that does not want to face the risk of significant liability. Option B should be a last resort, but undoubtedly some businesses will face some tough decisions when the new regulations come into play. Options C and D are the most realistic and safe measures, which will allow the employer to remain in compliance going forward. A wise employer will start considering these options now.

5. Keep Great Records

In the event you learn of a DOL audit, or your company is served with a lawsuit, you’ll sleep easier knowing you provided clear guidelines to employees, obtained employees’ acknowledgments of the guidelines, and kept excellent time sheets.

Bonus Advice: Seek Guidance!

The Department of Labor has a hotline (1-866-4WAGE) where an employer can seek some basic guidance; however, I highly recommend contacting an experienced labor and employment attorney to guide your company through these changes to ensure your company is in compliance.

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