The Nuts and Bolts of Complying with the New Overtime Regulations

HR consultants, legal advice, manpower, payroll, benefits and more

Dana Wilkie By Dana Wilkie September 28, 2016
The Nuts and Bolts of Complying with the New Overtime Regulations

This is the second in a three-part series about how organizations are complying with the DOL's new overtime regulations.

When Ben Walker made the decision to move his five employees from salaried, exempt status to hourly pay so they'd be eligible for overtime, the CEO of Denver-based Transcription Outsourcing LLC consulted with an attorney, an accountant and his payroll department.

[Part 1: Overtime Rules Create Reclassification Conundrum]

The fees? Less than $500 to reclassify the five workers and ensure the switch complied with the Department of Labor's (DOL's) new overtime regulations, which take effect Dec. 1.

When it comes to implementing the new regulations—which will affect millions of workers across the nation—Walker seems to have had it easy.

Some of his counterparts in the business world might not be so lucky.

On Dec. 1, the federal annual salary threshold for employees exempt from overtime pay will double, increasing to $47,476 from $23,660. Employees who make less than the threshold must be paid time-and-a-half for any hours worked beyond the 40-hour workweek. If employers want workers earning below the threshold to remain exempt from overtime pay, they must bump these workers' salaries to at least $47,476.

FLSA Overtime Rule Compliance

For more overtime compliance news, tips and tools, check out the SHRM resources provided below:

· FLSA Overtime Rule Resources Guide
· Compliance Checklist· Infographic

The DOL estimates that it should take businesses about one hour to review data and ensure that their companies are compliant with the new rules. But some employers are taking issue with that estimate.

Gretchen Van Vlymen is head of HR for Chicago-based StratEx, an HR software and consulting firm that specializes in the hospitality and restaurant industries. Her team of consultants is spending eight to 24 hours with each client exploring options under the new regulations, explaining changes to workers, and rejiggering payroll and benefits software to reflect those changes.

Luckily, her company's HRIS software, eStratEx, made some of these changes relatively easy. But the bulk of her consultants' time, she said, has been spent helping clients decide whether to raise salaries to the new threshold so workers can remain exempt or to make these exempt workers hourly and, thus, eligible for overtime.

Bethany Holliday, SHRM-CP, is HR director for St. Louis-based The Cornerstone Insurance Group and Cornerstone Employer Solutions. She says the DOL's one-hour estimate is pretty conservative.

"I can tell you that, personally, I've spent well over an hour just talking about the rule with a client, then an additional two hours reviewing their [employee] roster," Holliday said. "Certainly, the smaller the group, the less employees there are to review, but … I'm seeing employers taking several hours to review their rosters, analyze current hours worked and perform cost analyses to determine overtime rates versus salary adjustments.

"We've had three months to work on this and are lucky enough to have roughly another three, but Dec. 1 is fast approaching, and employers should not wait 'til the last minute to start reviewing their data."

Tricky Transition for Some Industries

For companies in industries such as hospitality, where the ebb and flow of customer demand can make an employee's hours unpredictable, much time will be spent figuring out how to control overtime costs, Van Vlymen said.

"By nature, the hospitality industry has a lot of middle-management positions that make for a tricky transition, such as assistant general managers, event planners, catering managers, sous chefs or shift leads who've historically been paid as salaried exempt," she said. "These businesses also tend to have employees who have split or dual exempt and nonexempt roles—like a bar manager who fills in as bartender a few nights a week.

"If the employees have previously been exempt, the overtime wasn't an issue. But now it could be hard to predict for these newly classified nonexempt employees. These companies are having to dig deep to realize cost savings elsewhere now that they may be on the hook for widespread increases in overtime for these folks who play a vital role in running day-to-day operations." 

Hidden Costs

As for compliance costs, that depends on the industry and the company, said Michael Abcarian, who is the managing partner of Fisher Phillips in Dallas and an expert on wage and hour laws. He advises nonprofits, as well as clients in the hospitality, restaurant and retail industries. He said many employers haven't even considered the additional costs they will bear for:

  • Becoming familiar with the new rules. "This may include hiring outside counsel or having a significant number of employees attend training, as well as the amount of money that will be lost while employers, in-house counsel and HR departments review DOL requirements and evaluate their options."
  • Converting employees to nonexempt status. "This may include purchasing and implementing new or different time-tracking systems, changing employees' statuses in databases and documents, and training employees and managers regarding proper procedures for accurately recording time worked in job titles where this was not previously a consideration."
  • Spending extra time on recordkeeping. "It will take time for affected employees and their managers to track hours and adjust to new procedures. Additionally, reclassification of employees may increase the time it takes to do payroll."

Legal Advice and Other Resources

Jason Carney is HR director at Indianapolis-based WorkSmart Systems, which provides HR services for small- to medium-sized employers. The company is responsible for about 5,500 worksite employees spread out over 100 client companies and 43 states. He predicted that virtually every step a company takes to comply with the new regulations needs to be reviewed by an attorney.

"Not only does this new ruling have direct legal implications, but the press it has gotten and is continuing to get is unprecedented," he said. "This puts a spotlight directly on the concept of exempt versus nonexempt like never before. Employees who may not have cared how they were classified in the past suddenly have a new interest—and new questions. I feel the new spotlight … may result in employees beginning to question their pay status."

Christian Antkowiak is counsel in the Labor & Employment section of Pittsburgh-based Buchanan Ingersoll & Rooney PC. When advising his clients in the satellite telecommunications, health care, and oil and gas industries, he's found that it helps to refer to DOL opinion letters on the rules, the DOL's Field Operations Handbook and recent case law.

"The practical, administrative realities have been difficult, and I've found that attending industry group programs and events—especially involving panels and roundtables—have been helpful in learning more about how others are handling these changes," he said.

For companies that have small HR departments or no HR staff, consultants like StratEx can shoulder the heavy lifting when it comes to overtime regulation compliance.

"The average HR department for the clients that we work with is usually one or two people—max," Van Vlymen said. "A lot of our clients don't have any HR staff to help at all; maybe they've elected a nontraditionally trained officer to handle HR matters such as a COO or a director of accounting.  In those situations, [our] HR consultants step in to educate the internal decision makers about the new regulations and ensure we have the right parties involved on drafting a game plan for dealing with the regs. Usually that involves a member of the C-suite, internal HR—if they've got it—and a member of the finance or accounting executive team."

Payroll, Accounting, Software

For some companies, adjusting timekeeping, payroll and benefits records for newly reclassified employees has been relatively simple.

Walker has five employees on staff and used—a firm based in San Francisco and Denver that provides companies with payroll, benefits and HR services—to make the transition.

"This was actually very easy," he said. "Their dashboard is easy to use. It may have taken a few minutes per employee at most."

The majority of Holliday's clients have electronic record keeping, so updating these systems has been fairly simple, she said. For example, one of her clients has about 100 employees. Of that 100, only 12 people needed to be reclassified. "This was a quick fix in the system, handled by payroll, and then a short session with the employees to explain how to track their time," she said.

But for others, it has been more complicated.

"Believe it or not, there are some organizations that have no nonexempt employees currently but are being forced to convert," Carney said. "This creates a number of challenges, from system implementation to education and training on not only the system but also the allocation of work time. The biggest concern with computer records has been helping some clients implement timekeeping for their new nonexempt workforce. "

Because some reclassified employees will see changes in their benefits, those records and paycheck deductions will also need attention, Van Vlymen said.

"Some employees who were exempt may have been eligible for benefits that they will no longer be eligible for as a nonexempt employee," she said. "So deductions need to be reviewed.  If the employer wants to allow those employees to maintain their benefits, eligibility requirements on plan documents may need to be updated."

Next week: Communicating changes to your employees, handling the inevitable reactions, and training managers and employees in their new roles.


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