On December 1, 2016, employers will have to pay more to take advantage of the so-called white-collar overtime exemptions from the Fair Labor Standards Act (FLSA). To prepare for the next change, employers need to know if and to what extent they will be affected by the new overtime exemption regulations.

The new rules focus primarily on the minimum wage and levels of compensation necessary to qualify for the FLSA’s executive, administrative, professional and IT employee overtime exemptions. Employers can ask the following questions to determine the potential impact of the new overtime rules before it is too late.

Are any employees classified as exempt under one of the FLSA’s white collar overtime exemptions? If not, you should not be affected by the higher standard salary levels under the new rules. If so, go to the next question.

Do any of these employees ever work more than 40 hours in a workweek? If not, you should not be affected by the higher standard salary levels under the new rules. If so, go to the next question.

Do any of these employees earn a salary of less than $ 913 per week? (This is equivalent to $ 1,826 fortnightly, $ 1,978 fortnightly, $ 3,956 monthly or $ 47,476 annually). If the answer is no, you shouldn’t be affected by the higher standard salary levels under the new rules. If yes, exemption classifications or compensation practices must be adjusted by December 1, 2016.

The most appropriate adjustments will typically depend on specific circumstances, such as the number of recently non-exempt employees, their wages, how often they work overtime, and the amount of overtime they work. Depending on your situation, employers may decide to implement one or more of the following adjustments.

Increase salaries. Perhaps the simplest and least disruptive adjustment would be to increase the salaries of exempt clerical employees to no less than $ 913 per week. Unfortunately, it can also be unrealistic for many employers. While some salary increases may be small, others may be more than double.

Those who choose this option should remember that exemption status requires more than meeting the new minimum wage requirements. Main job duties are still relevant under the new rules and employees still have to meet the applicable “standard duty test” to be exempt.

Pay overtime compensation to recently non-exempt employees. The alternative to increasing wages is to reclassify these exempt employees as eligible overtime employees. Those who work more than 40 hours in a workweek are charged one and a half times their regular rate. Remember that employers must keep track of the daily and weekly hours worked by all nonexempt employees, including new nonexempt ones.

Paying overtime compensation may not be a problem for employees who rarely work or work very little overtime. Despite paying more for occasional overtime, it would still be less expensive than raising wages. The same cannot be said for employees who work regularly or who work long overtime hours. Your overtime pay can add up quickly, possibly approaching or even exceeding $ 913 per week.

Ban overtime. Recently non-exempt employees may be prohibited from working overtime. If no overtime is worked, no overtime compensation is required. This option may be simple, but it may not be easy. Exempt employees typically work more than 40 hours in a workweek because they have more than 40 hours of work to do. Your work still needs to be done, but someone else will have to do it.

Adjust staff, schedules or assignments. Those who prohibit overtime may have to make various operational adjustments. For example, workload distribution and workforce scheduling may need to be adjusted to compensate for lost overtime. In some cases, it may be necessary to hire new employees to make up for lost productivity.

Adjust salaries. New non-exempt employees who are allowed to continue working overtime as usual will end up receiving more money for the same amount of work. Reallocating regular wages and overtime compensation is a way to keep hours worked and amounts paid to recently non-exempt employees nearly the same. However, employers cannot reduce an employee’s hourly wage below the highest applicable minimum wage (federal, state, or local) or continuously adjust wages each workweek to manipulate the regular rate.

Employers shouldn’t wait too long to start planning. It takes time to change exemption classifications and compensation practices, especially if they are substantial or complex. With all the hype, it’s safe to assume that the violations will be noticed not only by those who are affected by the new rules, but also by the Department of Labor.

To guard against the uncertainty and confusion surrounding the new rules, employers can benefit from having Labor Practices Liability Insurance to protect against various employment-related claims. Limited coverage may be available for wage and hour claims.

Employers should discuss the new overtime exemption rules with HR, payroll / accounting, managers and supervisors. Specific training by hours and wages should also be considered. Contact us for more information on how to prepare for the new white collar overtime exemption rules.

To receive regular updates on developments that may affect your business, subscribe to The Human Equation’s bi-weekly news roundup.


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