Comply with Overtime Rule Now to Facilitate Holiday Hiring

By Rosemarie Lally, J.D. Nov 1, 2016
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With the holiday hiring season gearing up, employers should act now to reclassify employees to comply with the Department of Labor's final overtime rule instead of waiting for its implementation on Dec. 1, legal experts say.

The rule, which more than doubles the exempt salary threshold from $23,660 to $47,476, has been challenged in federal district court by 21 states and over 50 business groups, which are seeking an injunction to stop the regulations. However, the court may not rule in their favor before the Dec. 1 effective date. And that means employers have less than one month to comply with the rule—just in time for hiring seasonal employees for the holidays.

The new rule applies mainly to the white-collar exemptions from overtime pay for executive, administrative and professional employees, noted Jeffrey Brecher, an attorney with Jackson Lewis in its Long Island, N.Y., office.

Most seasonal employees are likely to be nonexempt, so the final rule won't impact them directly. Brecher believes that employers are unlikely to hire seasonal managers because of the time and cost of training them and instead will use year-round managers to supervise seasonal recruits. However, others disagree and think that some seasonal employees, such as seasonal assistant managers with salaries above the exempt salary threshold, may be exempt.

[SHRM members-only Q&A: Overtime Eligibility: Exempt Salary Basis: What type of compensation can an employer include in an exempt employee's salary to meet the Fair Labor Standards Act minimum salary requirement?]

The rule has required many employers to reclassify some former managers whose salaries fall below the exempt salary threshold to nonexempt and eligible for overtime, Brecher said. "This means that regular employees who are charged with overseeing seasonal workers will cost more if they work more than 40 hours in a week," he noted.

Managers' Salaries

On the other hand, some employers have decided to raise managers' salaries to meet the new exempt salary threshold rather than reclassify them as nonexempt employees. Brecher said that Wal-Mart has taken the lead in immediately implementing raises, preferring to "deal with the hiccups now rather than at the height of the December holiday season."

Robin Samuel, an attorney with Hogan Lovells in Los Angeles, said that larger retailers are more likely than small businesses to raise managers' salaries to the new exempt salary threshold in order to keep good workers and avoid turnover. Employers also may want to review other exemptions that aren't covered by the new rule, such as the employer-side exemption for seasonal recreational or amusement establishments that operate for no more than seven months in a calendar year or that earn the bulk of their receipts in a six-month period, to see if they might qualify.

Regardless of what path an employer takes, Samuel stressed that the Dec. 1 effective date makes it desirable to expedite classification decisions to avoid a bumpy transition during the busy holiday season.

Samuel cautioned employers to verify that any positions traditionally filled during the holiday season still qualify for exempt treatment given the new salary-level requirements. He also reminded employers that seasonal employees can qualify as exempt "even if they're only hired for a month or two" as long as they earn $913 weekly and meet the other tests for the exemption.

"Close cases" should be carefully examined to verify that the employee is actually performing exempt duties, Samuel said. "If not, it's sound business practice to classify the worker as nonexempt."

Assistant Managers

Jeff Ruzal, an attorney with Epstein Becker Green in New York City, believes there is a "distinct possibility" that the new rule will affect holiday hiring of seasonal employees. This is especially likely in the retail and hospitality industries, where assistant managers may be hired on a temporary basis to supervise additional seasonal employees as well as to watch over a busier floor, he said.

" 'Assistant manager' is the classic position where employers often run into trouble," Ruzal noted, because to qualify as exempt the employee must be paid the salary threshold amount and also meet the primary duties test. "An assistant manager or floor manager may be on the cusp of being an exempt employee because of the mix of job responsibilities," he said.

Be aware of these common pitfalls when hiring and paying seasonal employees, Ruzal warned:

First, there is a common misconception about how seasonal exempt employees are paid, with many employers believing that part-time exempt employees' salaries can be prorated based on the hours worked. The Fair Labor Standards Act "doesn't distinguish between part-time and full-time employees," he said. "Exempt employees must be paid their full salary."

Second, many employers need a "reality check" about joint employment, Ruzal noted.

Employers may turn to a trusted vendor to outsource holiday hiring in order to obtain well-vetted, reliable seasonal workers. In these situations, it is critical that the vendor be in full compliance with state and federal wage and hour laws because the ensuing joint employer relationship may leave the employer liable for any misclassification errors by the vendor.

Tips When Hiring Seasonal Help

Ruzal's recommendations for those planning to engage in seasonal hiring include:

  • If outsourcing, "become nearly a partner" with your vendor. Insist on full transparency as to how employees are vetted and make sure the vendor is using its own W-2 employees, not contract workers. Include an indemnification clause in your contract to protect your firm from fallout resulting from possible employee misclassification by the vendor.
  • If doing your own seasonal hiring, get sign-off from managers high up the chain to the extent possible. "In the retail space, it's tricky because hiring decisions are made locally, not vetted top-down by the parent company, resulting in liability," he said. "Wherever possible, the organization should have an HR specialist or legal counsel review the high-level decision-making so everyone understands the choices they're making."
  • Make sure that nonexempt seasonal employees understand the importance of accounting for all time worked. "This is critical to avoiding off-the-clock claims," Ruzal said. Have policies in place for recording time worked and make sure managers are properly trained to implement them. Nonexempt employees should be required to let a manager know as soon as possible if they have forgotten to clock in or out.
  • Take care to review how seasonal workers are classified with respect to their permanent counterparts. For instance, if regular assistant managers are classified as exempt, it's important to classify seasonal assistant managers similarly.

Additional advice offered by Brecher for supervising and paying seasonal workers include:

  • Employees should "punch in first thing, punch out last thing" to ensure that they're paid for all hours worked.
  • All training for seasonal employees outside of normal work hours must be compensated as time worked.
  • Be careful to calculate the overtime rate correctly. For example, if a seasonal employee is incentivized with a bonus tied to performance, the bonus payment must be included in the employee's regular earnings for the purpose of determining the overtime rate.
  • If a seasonal employee is shifted from one location to another over the course of a week, the hours worked during a 40-hour week must be aggregated in determining eligibility for overtime pay.
  • Consult state wage and hour laws. In some states, overtime payment is due for any hours worked over eight in a day.

Rosemarie Lally, J.D., is a freelance legal writer and editor based in Washington, D.C.

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