Consultation: Preparing Your Company for the New Overtime Rules

 

By Jan 22, 2016

When the U.S. Department of Labor (DOL) released its proposed overtime regulations in late June, it sent shock waves through the HR world. Now it’s time to master the skill of consultation by guiding others on what to expect in 2016.

In short, the DOL plans to more than double the minimum annual salary for executive, administrative and professional overtime exemptions to $50,440 from $23,660. The threshold for highly compensated employees would rise to $122,148 from $100,000. Both amounts would be adjusted annually thereafter. The department plans to issue a final rule between sometime in 2016, with an effective date 60 to 120 days after publication.

If the final rule resembles the proposed one, these regulations will not affect all businesses evenly. If your company operates in lower-wage markets, such as the South, the Midwest and rural areas, you will likely bear a heavier burden. The same is true in industries with many managers who earn less than $50,000, such as retail, restaurants, health care and manufacturing.

In many companies, the reclassification may result only in operational changes—that is, modified job duties, schedules and staffing levels, for example. Employees reclassified from exempt to nonexempt will likely see their scheduled hours—and overall pay—decline as employers rearrange work schedules to avoid incurring high overtime costs. In the long run, the regulations will transfer working hours and pay from the workers who face reclassification to other employees or new hires. Make no mistake: This will lead to many unhappy people—which will in turn spur more employment litigation of all types, not merely wage and hour claims.

To prepare for the coming changes, focus on these three priorities:

Assess the scope of the issue for your organization. Identify all exempt workers with a salary below $50,440. Then, to the extent that your company relies on the highly compensated employee exemption, do the same for everyone earning between $100,000 and $122,148 per year.

Develop a strategy for managing conversions to nonexempt status. For workers who earn close to the new minimum salary, it may make sense to raise their salaries to $50,440. If that’s not feasible, work with your operations team to plan on paying them as nonexempts. Start by asking these questions:

  • How many hours do these employees currently work? If you don’t know, consider tracking their time.
  • Will post-conversion pay and working hours replicate an employee’s current situation, or will you need to restrict schedules at or near 40 hours?
  • Will you base the new hourly rate on annual salary divided by 2,080 (40 hours a week × 52 weeks) and just eat the overtime expenses? Will the hourly rate assume an employee will work a certain amount of overtime?
  • Will you need to reassign certain tasks to other workers?

Ensure that your approach is consistent across the organization. These decisions should not be one-off calls made by managers.

Communicate with employees. Your workforce is probably already abuzz about this issue. Those in the reclassification zone may feel anxious about what they perceive as a demotion. Reassure employees that no final rules are out yet and that you will continue to monitor these developments. That will go a long way toward alleviating their concerns and maintaining positive morale in 2016 and beyond.

Paul DeCamp is a shareholder in the Washington, D.C., region office of Jackson Lewis P.C. and previously served as administrator of the U.S. Department of Labor’s Wage and Hour Division.

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