To-Do List in Response to Proposed Overtime Rule

By Allen Smith Sep 29, 2015
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Employers don’t have to be in a holding pattern while waiting for the Department of Labor’s (DOL's) proposed overtime rule to be finalized.

While the DOL reviews 290,000 comments on the proposed rule, Lee Schreter, chairperson of the board of directors for Littler in Atlanta and a former HR professional, said that employers have the opportunity to “hope for the best and prepare for the worst.”

Initial Steps

A few simple steps may help with employers’ compliance efforts even before the final rule is released.

Paul DeCamp, an attorney with Jackson Lewis in Reston, Va., and former administrator of the Wage and Hour Division, recommended that employers:

  • Identify currently exempt jobs with salaries that fall below the proposed new salary threshold for exempt employees, using $970 per week, or $50,440 per year.
  • Determine whether to have a zone within which employees close to the new threshold will get bumped up to maintain exempt status, or whether the approach will be to reclassify as nonexempt all employees whose current salary is below the new minimum.
  • For employees who probably will be reclassified, understand now how many hours they are working per week so employers can model pay going forward with reasonable accuracy.
  • Determine what approach to take in setting nonexempt pay rates. DeCamp asked whether the hourly rate will simply be the current weekly salary divided by 40, or whether there will be an effort to replicate current pay and hours, such as by lowering the hourly rate to account for the possibility of overtime compensation.
  • For employees subject to the highly compensated standard but below its new proposed pay level—that is, between $100,000 and $122,148 per year—determine whether those jobs satisfy the full duties test of one or more exemptions, as opposed to the relaxed duties standard applicable for highly compensated employees.
  • Consider whether to reclassify other positions at this time to manage risk and enhance compliance.

“What operational changes need to happen as a result of the reclassification: changes to job duties, changes to schedules, changes to staffing levels?” DeCamp asked.

“For critical positions that often result in overtime pay, employers should consider hiring more full-time, part-time and/or seasonal employees, or restructuring their workforce to offset a potential expansion of overtime pay,” said Phyllis Cheng, an attorney with DLA Piper in Los Angeles.

Rob Boonin, an attorney with Dykema in Detroit and Ann Arbor, Mich., said an employer should review job descriptions and identify work of an exempt nature that could be reassigned to other exempt employees. He added that employers should consider whether their mechanisms for recording time are in place for newly reclassified employees.

Long and Short Tests: Back to the Future

Other steps are not so simple. For example, employers may need to get in a time machine and travel back to the days of the long and short tests—or at least read up on how these tests used to be conducted.

Schreter said employers should refamiliarize themselves with the tests in case the DOL reverts to using them, as she fears it might. In DOL’s FAQs about the proposed rule, it notes that the tests were used from 1949 until 2004, when a long test applied to employees paid a lower salary and a short test to employees paid a higher salary. Under the long test, exempt employees could not spend more than 20 percent of their time on nonexempt activities, unless they were retail and service workers. (The limit increased to 40 percent for these employees.)

The old long and short tests were so complicated that the DOL has admitted that even its own investigators had difficulty implementing them, Schreter said.

The DOL’s proposed increase in the salary threshold level for exempt employees was intended to make a return to the long and short tests unnecessary. As the DOL stated in the preamble to the proposed rule, “The department believes that the proposed salary compensates for the absence of a long test, which would have allowed employers to claim the exemption at a lower salary, but only if they could satisfy a more restrictive duties test.”

Schreter recommended that businesses with offices in California look to classification of workers in that state for guidance on how to reclassify their workers in other states. Schreter thinks the DOL may, rather than reinstituting the long and short tests, change the duties test to reflect California law. California requires that more than 50 percent of an employee’s time be spent on work that is exempt in order for the worker to be ineligible for overtime compensation.

DOL Might Back Down

Employers should prepare as well for the possibility of the DOL backing down some from its doubling of the salary threshold for exempt employees.

The DOL might concede that its proposed salary level of the 40th percentile of earnings for full-time salaried workers is too high and may settle on a salary amount based on the 30th or 35th percentile instead, noted Alfred Robinson Jr., an attorney with Ogletree Deakins in Washington, D.C., and former acting administrator of the Wage and Hour Division. A salary level at either of these possible percentiles would be a substantial increase: $852 per week or $44,304 per year at the 35th percentile, or $773 per week or $40,196 per year at the 30th percentile. Employers should analyze which employees fall below these thresholds as well, to better prepare themselves for the possibility of a different salary threshold.

Another good idea: Employers should determine whether reclassified employees will be paid on a salaried basis with overtime eligibility, using the fluctuating workweek methodology or a Belo plan, or paid on an hourly basis, according to Robinson. Other options include finding out whether it’s possible to use exemptions other than the white-collar (administrative, executive, professional and computer employees) exemptions, he added, such as the retail sales or service establishment exemptions.

“These options will necessitate detailed planning and thorough communications,” Robinson said.

Communications Strategy

In fact, developing a communications strategy about the changes in overtime exemptions more generally is in order.

“Have your messaging worked out in advance,” DeCamp said. “Will there be group communications? Individual meetings?“

“Employees are probably talking about these coming changes right now, and anxiety about losing exempt status, benefits and pay—basically a demotion—may be running very high,” he noted.

“Employers may consider preparing FAQs and letting employees know that they are struggling with these issues, so that there will be fewer surprises whenever the amended regulations become effective,” Boonin suggested.

Allen Smith, J.D., is the manager of workplace law content for SHRM. Follow him @SHRMlegaleditor.

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