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What Employers Need to Know About the New Changes to Federal Overtime Regulations

The Bar Association of Montgomery County Newsletter July/August 2016

The long-awaited amendments to the so-called “white collar” exemptions to the federal overtime regulations were finally issued by the Department of Labor (DOL) on May 18. The effective date of the new amendments is December 1, 2016.

The amendments substantially increase the threshold amount 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 new rules more than double the threshold salary requirement from $23,660 to $47,476.

Interestingly, the changes do not revise the substantive “duties" tests that also must be satisfied in order for an employee to fall within one or more of the “white collar” (i.e., executive, professional, or administrative) exemptions. The new rules also increase the threshold amount of the “highly compensated” exemption to the overtime rules from $100,000 to $134,004 annually.

Further, the DOL reduced the frequency of the automatic increase in the salary threshold from one year to three years. The standard salary level will now be updated every three years to maintain a threshold equal to the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region. The practical and stated purpose of the new rules, according to the federal government, is to significantly increase the number of individuals eligible for overtime pay.

Not surprisingly, the new rules have brought a cascade of complaints from employer groups. Employers should begin preparing now 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 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 made properly, particularly in light of the significant consequences of mischaracterization.
  • Analyze which employees are currently considered exempt who earn less than the new salary threshold of $47,476.
  • For employees presently earning slightly less than the $47,476 threshold, consider whether it makes sense to increase their salaries above the $47,476 threshold so that these individuals would be eligible for exemption from the overtime rules if they satisfy one or more of the substantive “duties” tests.
  • 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, decide whether and to what extent to reassign certain work duties to other employees.
  • Given the availability of overtime pay for employees not previously eligible to receive it, consider hiring additional employees to reduce the likelihood that any employee will need to work overtime.
  • Consider extent to which increased overtime obligations will impact the employer’s financial ability to fund other company benefits.
  • Consider how to communicate to employees that their status has been changed from exempt to nonexempt.
  • Explore insurance coverage for overtime claims.

Regrettably, the new overtime rules do nothing to address the significant confusion that the overtime rules currently engender. The new rules will no doubt only add to the confusion and spawn a new generation of overtime claims. Employers that plan now for the overtime changes scheduled to take effect on December 1 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 regularly counsels clients on how to comply with state and federal employment statutes and wage hour laws. For more information on successful strategies for managing employees and preventing employment claims, contact Marc at (301) 657-0184 or mrengel@lerchearly.com.

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This content is for your information only and is not intended to constitute legal advice. Please consult your attorney before acting on any information contained here.

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