Knowledge and Insights

After much anticipation, the Department of Labor recently released a new rule that will change how employers compensate employees. Effective December 1, 2016, workers who earn above the previous threshold but below the new one will qualify to receive time-and-a-half for each hour they work surpassing 40 hours a week. An estimated 4.2 million salaried workers will become eligible for overtime pay under the new rule.

The new rule will:

• raise the salary threshold at which white-collar workers are exempt from overtime pay from $23,660 to $47,476;
• strengthen overtime protection for salaried workers already entitled to overtime;
• automatically update the salary threshold every three years, based on wage growth over time;
• provide greater clarity for workers and employers.

Job titles do not determine exempt status. In order for an exemption to apply, an employee’s specific job duties and salary must meet all the requirements set by Department of Labor regulations. If you are unfamiliar with the criteria, please refer to our exemption checklist, which explains the job requirements to meet the overtime exemption.

The exemptions do not apply to manual laborers or other blue collar workers who perform work involving repetitive operations with their hands, physical skill and energy. The exemptions also do not apply to police, fire fighters, paramedics and other first responders.

Many businesses will be affected and must comply with the new rule. As a business owner, you have a variety of options to comply:

• Pay time-and-a-half for overtime work;
• Raise worker’s salaries above the new threshold;
• Limit workers’ hours to 40 per week;
• A combination of the above.

Below are four steps you can implement which will help integrate the changes successfully into your workflow.

1) Review payroll and identify employees who are exempt – The first step is to review your payroll and identify exempt employees whose salaries are below the new proposed thresholds for executive, professional and administrative white collar exemptions. It will also be important to identify employees who are currently classified as exempt from the overtime protections of the Fair Labor Standards Act because they must meet the duties test for their exemption to be recognized.

2) Consider which positions to transition to non-exempt status – Once you have reviewed your payroll and identified the employees who are exempt it will be essential to carefully consider which positions to transition to nonexempt status. Employers have two options: they can either increase the salary level to maintain an employee’s exempt status or transition the position to nonexempt status. When transitioning positions to a nonexempt status, ask yourself the following questions:

• What will be the basis for pay: hourly or salaried?
• Does this meet the minimum wage requirements?
• Will overtime be permitted? Is it necessary?

3) Invest in automation to streamline timekeeping practices – Anticipate more time to track for employees transitioning from exempt to nonexempt status. To ensure complete compliance with the Fair Labor Standards Act and state laws, consider investing in a time and attendance software. It will help track hours worked. Establishing a formal policy will also help track and record time. The policy should define:

• What is considered time worked?
• How is overtime approved?
• Who approves overtime?
• What are the consequences for failing to follow the policy?

4) Communicate changes internally – The final step is to communicate and educate staff of any policy changes. Don’t forget to include employees who are already nonexempt; they also will need a refresher. Communications and training programs must be timely. Consider having supervisors regularly administer audits to ensure employees are following protocol.

Employers have several months to prepare for the new rule. Read our Overtime Exemption Checklist to make sure you are prepared and contact me at [email protected] or 609-689-9700 to learn how Mercadien’s professionals can help you develop a strategy to ensure your business is in compliance.