You are likely aware of the revised U.S. Department of Labor overtime regulation revisions that will become effective on December 1, 2016. No business organization is exempt from preparing for compliance with the new federal overtime rules. As such, all companies and many non-profit organizations must prepare to ensure that they are in compliance with the new overtime pay regulations no later than the beginning of the pay period that includes December 1, 2016.
On December 1, 2016, the federal annual salary threshold for white-collar employees exempt from overtime pay will increase to $47,476 from $23,660. Additionally, the salary threshold for highly compensated employees will increase from $100,000 to $134,000. Therefore, all white-collar exempt employees who earn less than the new threshold of $47,476 or $134,000 for highly compensated employees must be paid time and a half for any hours worked beyond the 40-hour workweek. According to the U.S. Department of Labor, its increase in the threshold will result in more than 4.2 million additional white-collar workers being eligible for overtime pay. The Department of Labor estimates that the new regulation will cost private employers $1.8 billion in the first year of implementation. The increased cost for employers will continue to escalate because the Department of Labor will update the annual white-collar exemption salary threshold every three years, reaching more than $51,000 in January 2020 according to Labor Department estimates. The threshold updates every three years are intended to ensure that the white-collar exemption threshold remains equal to the salary of the 40th percentile of full-time salaried workers in the U.S. Census region with the lowest income. It is imperative that all employers initiate and complete an analysis of how to comply with the new overtime regulation in order to adhere to the law, avoid Labor Department fines and penalties for noncompliance and appropriately compensate all white-collar exempt employees. Here’s how:
- Obtain a headcount of impacted personnel. Determine and list the current salaries of the total number of white-collar exempt employees who earn less than the new annual salary threshold of $47,476 or $134,000 for highly compensated employees.
- Estimate overtime pay costs. Analyze the company’s estimated future overtime payment costs for each of the identified white-collar exempt employee based on their individual average hours worked each week. Each employee’s overtime pay must be calculated based on his/her hourly rate of pay. If practicable based on the analysis, then employer’s may elect to pay overtime premium pay of time and half to white-collar employees earning less than $47,476 annually for any overtime hours worked in a workweek. In many instances, it will prove difficult to accurately estimate the overtime pay costs for all impacted employees, particularly managers who often experience regular fluctuations in their weekly work schedules. Therefore, employers seeking a potential fixed cost compliance method may consider implementation of one of the other options explained in this article.
- Review the company budget to evaluate compensation options. Employers have sole discretion to determine how to comply with the new overtime pay regulations and; therefore, may select one of the following options:
- Increase exempt employees’ salaries. If an exempt employee’s current salary is close to the new higher threshold of $47,476 (or $134,000 for highly compensated employees), then employers may opt to increase their salary in order for him/her to remain exempt from overtime pay if that is the most cost effective option. Employers may include nondiscretionary bonuses, incentive pay and commissions paid on a quarterly or more frequent basis of a maximum of ten (10) percent of the threshold ($4,747 or $13,400 for highly compensated employees) annually to calculate whether an employee meets the minimum salary threshold. Employers have the option to pay quarterly “catch-up” payments to employees if the incentive pay fails to bring them up to the annualized minimum salary threshold in a quarter.
- Reclassify exemption status. Companies may opt to reclassify personnel with annual salaries between $23,660 and $47,476 or $100,000 and $134,000 from exempt to nonexempt. Subsequently, employers must pay overtime premium for all hours worked in excess of forty (40) hours in a workweek for the newly classified nonexempt personnel earning less than $47,476 or $134,000 for highly compensated employees annually. The current Department of Labor standard requiring employers to implement a method to accurately calculate and record hours worked by nonexempt employees remains unchanged. Employers need to evaluate any existing telecommuting policies. Although the policies may not need to be revised, exempt managers must understand that the expectations and close monitoring of a newly classified nonexempt employee’s telecommunication work schedule must be monitored prudently. The nonexempt employees must record all hours that they work remotely and on site each week to ensure accurate calculation of required overtime pay earned, if any. Finally, companies must consider potential changes to employees’ benefits (i.e., insurance, vacation leave accrual, etc.) when they are reclassified from exempt (salaried) to nonexempt (hourly), if any.
- Restructure company personnel. Employers may opt to reduce or eliminate overtime hours worked by impacted employees who convert to nonexempt status by placing restrictions on overtime hours worked; effectively tracking overtime hours; hiring more personnel to handle workloads; or restructuring the workforce by transferring some duties to exempt employees.
- Audit position descriptions and duties. Many companies should take this opportunity to review job descriptions of exempt positions to verify that the duties are accurate and determine if any positons need to be reclassified. It is imperative to confirm that employees with the same position are not classified differently to prevent the likelihood of discrimination claims. There is no change in the duties test. Therefore, employees who perform executive, administrative and professional duties are exempt from overtime requirements as are certain computer professionals.
- Monitor Compliance. The duty of employers to continually monitor strict compliance with U.S. Department of Labor regulations is unchanged. All private sector employers and non-profit organizations that are not exempt from the revised overtime pay regulations (U.S. Department of Labor Overtime Final Rules and the Non-Profit Sector Fact Sheet) must properly pay all non-exempt personnel overtime premium pay when earned by employees. Therefore, prudent companies and organizations will implement on-going compliance measures to verify accurate job descriptions that properly classify all personnel as exempt or nonexempt and accurate tracking of overtime hours worked each week by nonexempt personnel.
What are you doing to prepare for the new regulations?
