Three Things Employers Must Do to Prepare For the New Overtime Rules

Three Things Employers Must Do to Prepare For the New Overtime Rules

by:  Michael W. King, Partner, Stock and Leader Attorneys at Law

 

The new overtime regulations under the Fair Labor Standards Act (“FLSA”) become effective December 1, 2016.  For any employers who have not yet prepared for the very significant change in the minimum salary level required for exempt status, this article is intended to focus your attention on three “MUST DO” actions.

Number 1.  Make a List of All Employees Currently Classified as Exempt and Their Current Salaries.  Those being paid less than $913.00 per week ($47,476.00 per year), will not qualify for exempt status, irrespective of the nature of their duties or the fact that they are being paid on a salary (vs. hourly) basis.

Number 2.  Review Job Descriptions/Job Duties.  Exemption requires that the employee:  (a) be paid on a salary basis; (b) meet the salary threshold; AND (c) that their duties meet the “duties test” for the so-called “white collar” exemptions for Executive, Administrative and Professional positions.[1]  Note that neither job titles nor the manner in which an employee is paid (salaried vs. hourly) are determinative of exempt status.[2]

Number 3:  Take Corrective Action as to any Employees Currently Classified as Exempt Who Do Not Meet the Criteria for Exemption, Either Because of the Salary Threshold, Duties Test, or Both.  Such corrective action could include:

(a)        Continue the current rate of compensation, but on a non-exempt hourly basis, with overtime pay for all hours worked over 40 in the workweek;

(b)        Increase the employee’s salary to at least $913.00 per week in order to maintain the exemption (provided that the position meets the “duties” test);

(c)        Reorganize workloads, adjust schedules, spread work hours, or consider hiring additional employees (most likely on a part-time basis) to reduce overtime work;

(d)       Adjust compensation rates to reallocate earnings between regular wages and overtime wages so that the total amount paid to the employee on a non-exempt basis remains largely unchanged or is increased, but to a lesser extent than if no adjustment was made.[3]

 

Helpful Resources

The Wage and Hour Division of the U.S. Department of Labor has done a surprisingly good job of providing resources to employers to assist in compliance with the overtime rules.  One of the best is the “Small Entity Compliance Guide to the Fair Labor Standards Act’s White Collar Exemptions” available on its website:  https://www.dol.gov/whd

 

This article is intended to provide general information to employers and is not to be considered as legal advice.  Employers should contact an experienced labor and employment attorney for such advice.

[1] Employees who meet the “outside sales” criteria are exempt and are not subject to the minimum salary threshold.

[2] Neither the “computer” nor “highly compensated” employee classifications are recognized as exempt under Pennsylvania law.  While almost all highly compensated employees will be exempt under other classifications that are recognized by Pennsylvania, this is not necessarily true of employees in the “computer” classification.  Unless clearly exempt under the “executive,” “professional,” or “administrative” classifications, computer technology positions should be treated as non-exempt in Pennsylvania.

[3] For example, assume the exempt employee earns $750.00 per week and works an average of 5 hours of overtime per week, thus effectively earning $16.67 for each hour worked.  The employee could be reclassified as non-exempt, at an hourly rate of $15.80.  With 5 hours of overtime at time and one-half ($23.70 per hour), the hours and earnings remain the same at 45/$750.00 per week (although this may nevertheless “feel” like a reduction in pay to the employee).