Employers Must Start Planning for Overtime Compliance

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Employers have less than six months left to comply with the Department of Labor’s (DOL’s) new overtime rule, and they need to start putting a plan together now, said Tammy McCutchen, an attorney with Littler in Washington, D.C.

Starting on Dec. 1, 2016, the minimum salary for employees to be considered exempt from the Fair Labor Standards Act’s overtime provisions will be $47,476, or $913 per week.

If companies currently have exempt employees who are paid less than the new minimum, they need to start identifying who is going to remain salaried and who will be paid hourly moving forward, said McCutchen, who formerly served as an administrator of the DOL’s Wage and Hour Division.

It takes time to get executive approval on new compensation plans, so the next six months will go by fast, she said, speaking June 21 to attendees at the Society for Human Resource Management 2016 Annual Conference & Exposition.

Determine Hours Worked

Most companies don’t know how many hours their exempt employees are working, McCutchen said.

Employers need to find that out so they have good information in order to evaluate the costs associated with any change in compensation plans.

Employers can talk to immediate supervisors about how many hours their employees are working, or they can talk directly to the employees.

“Normally I wouldn’t advise my clients to talk directly to their employees about wage and hour issues. But your employees know about this, so I think it’s OK to talk to them about it.”

Companies may consider having these employees track their time worked for a few weeks to collect this information. Then employers will have to decide if they want to continue to pay these workers on a salary basis or convert them to hourly pay.

“You can continue to pay nonexempt employees a salary; you just have to track their hours and pay overtime,” McCutchen said.

There are four methods of calculating overtime for salaried, nonexempt employees, she noted, but not all of those methods are permissible under every state’s wage and hour laws.

Including Bonuses Is Complicated

The new rule allows employers to include nondiscretionary bonuses, incentive payments and commissions that are paid at least quarterly to satisfy up to 10 percent of the minimum salary requirement.

There is a lot of confusion about how to make use of this provision, McCutchen said.

Employers that want to take advantage of this must pay a weekly salary of at least $821.70, or 90 percent of the new minimum exempt salary.

Employers can pay bonuses as they normally would, but, at the end of each quarter, they need to make sure the salary and bonus payments work out to at least $913 per week.

“If for some reason you don’t make the $913, you have one—and only one—pay period to make up the difference,” she said. “If you don’t, you will owe that employee overtime.”

Employers need to have really good controls in place to make this work, she said. “You have to do it very carefully, and I recommend you contact your outside counsel to discuss your plan.”

Communication and Training

Wage and hour training is essential, particularly for newly nonexempt employees who have never had to clock in and out before.

Companies have to make sure employees who are not used to the rules for nonexempt workers aren’t working during their meal and rest breaks or using their laptops at home without tracking their time.

Employers also have to consider their existing travel policies, benefits and other programs, and how they will apply to newly nonexempt employees.

It should be explained to employees that this rule was mandated by the federal government and that any reclassification is not a demotion, McCutchen said. Tell employees these are simply new rules and that they are still valued members of the organization.

Lisa Nagele-Piazza, SHRM-SCP, J.D., is the senior legal editor for SHRM.

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