How to Prepare for Changes to the Federal Overtime Regulations
The proposed overtime regulations issued by the Department of Labor in the Spring of 2015 are scheduled to become final at some point in 2016, although the precise date of the issuance of the final rules is currently unknown. Once the DOL issues the final rules, employers will have a relatively short period of time, probably fewer than 120 days, before the overtime rules become effective.
The primary change contemplated by the proposed rules is to substantially increase the threshold amount of money that employees must earn in a year before they can be considered exempt from the overtime requirements under the executive, professional, and administrative exemptions to the overtime rules. Specifically, the proposed rule would more than double the threshold salary requirement from $23,660 to $50,440. Interestingly, the proposed changes do not seek to revise the so-called substantive “duties" tests which also must be satisfied in order for an employee to fall within one or more of the executive, professional, or administrative exemptions. The proposed rules would also increase the threshold amount of the so-called “highly compensated” exemption to the overtime rules from $100,000 to $122,148. The practical and stated purpose of the proposed rules, according to the federal government, is to significantly increase the number of individuals eligible for overtime pay.
Not surprisingly, the proposed rules have brought a cascade of complaints from employer groups. That said, it seems likely that the proposed rules will become final sometime later this year. Employers should begin preparing for the changes to the overtime regulations. In this regard, employers should consider the following:
- Carefully review the job positions and job descriptions of their current employees to determine whether they are being properly characterized as exempt. This undertaking should be done under the guidance and direction of outside employment counsel in order to better ensure that the characterizations are being properly made, particularly in light of the significant consequences of mischaracterization.
- Analyze which of their employees are currently considered exempt who are earning less than the new salary threshold of $50,440.
- For employees presently earning slightly less than the $50,440 threshold, consider whether it makes sense to increase their salary above the $50,440 threshold so that these individuals would be eligible for exemption from the overtime rules.
- In circumstances where previously exempt employees will now be considered non-exempt, decide whether to place limits on the number of hours that these individuals can work and, if so, the nature and extent of these limitations. The imposition of limitations on hours that individuals can work will not only have financial consequence to individuals, but will likely have an impact upon employee morale.
- If a decision is made to limit the number of hours that a (new) non-exempt employee can work, then a decision also needs to be made regarding whether and to what extent to reassign certain work duties to other employees.
- The availability of overtime pay for employees not previously eligible to receive it should prompt consideration of hiring additional employees to reduce the likelihood that any employee will need to work overtime.
- The extent to which increased overtime obligations will impact the employer’s financial ability to fund other company benefits.
- The manner in which to communicate to employees that their status has been changed from exempt to nonexempt.
- Exploring insurance coverage for overtime claims.
Regrettably, the proposed overtime rules do nothing to address the significant confusion that the overtime rules currently engender. The proposed rules, once finalized, will no doubt only add to the confusion and spawn a new generation of overtime claims. Employers that begin planning now for the overtime changes will be better prepared to deal with the legal, financial, and management issues that will accompany these changes.
Marc Engel is an employment attorney and litigator at Lerch, Early & Brewer who advises managers of all types on employment issues, and provides strategies for preventing, defending, and resolving wage and hour claims. For more information about issues surrounding overtime, contact Marc at (301) 657-0184 or firstname.lastname@example.org.