On The Clock!
Time to cash in – or cash out? I guess that depends if you are an employer or an employee, but the clock is now ticking on a new overtime law. On May 18, 2016, the Obama administration and the Department of Labor announced new regulations that will increase the salary threshold for OT pay. When the new regulations take effect on December 1, 2016, millions of workers will be entitled to time-and-a-half pay when they work more than 40 hours in a week. There is
a good chance the Department of Labor’s ruling will directly impact you and your business.
How will this affect our industry?
What about the small businesses that help keep it on two-wheels? For those who are not aware of this new law, here is how it works:
The current rules, which expire November 30, 2016, dictate that salaried workers making more than $455 a
week, or $23,660 a year, do not qualify for overtime pay. The new changes more than double that to $913 a week,
or $47,476 a year.
So that awesome employee you’ve been paying $40,000 (and who definitely pulls more than 40 hours a week)? They may be entitled to OT compensation at time-and-a-half for every hour after 40 hours a week. The overtime compensation rules provide exceptions for employees who perform duties that are mainly executive, administrative or professional. Those employees would not be entitled to overtime and could remain exempt (i.e. salaried as opposed to hourly).
This is where its important to be certain you know just how to classify any role that could be impacted by the new rules. As the boss, you will have to review their job description and subject it to the “duties test,” which describes the specific duties that qualify employees for exemption from overtime pay. As the employee you need to make sure you are getting what you are legally entitled to. You can find it here: http://1.usa.gov/1ToGzgX
What You Should Do
If you employ salaried, full-time workers who are paid less than $913 per week, you’ll need to decide how to respond to these new rules. Some options:
• Keep salaries the same, eliminate or reduce overtime. Be sure to monitor activity and hours to limit overtime.
• Raise salaries to the new minimum, enabling you to require unpaid overtime of qualified employees.
• Keep salaries the same, pay overtime. This is financially beneficial if overtime is limited or irregular and current pay is at the low end of the present minimum. Be careful tracking employees’ hours.
• Lower wages, pay overtime. This results in your expenses staying the same, but will certainly create disgruntled employees and high turnover.
• Hire more employees. If you regularly need a lot of overtime from current employees, you may want to consider hiring additional hourly workers to pick up those extra hours.
Exempt vs. Nonexempt
After a lot of boring research, here is the short version of what I found out. The purpose of the FLSA (Fair Labor Standards Act) is to protect workers from being exploited, but business needs flexibility, so FLSA exempts bona fide salaried executives, administrative and professional (EAP) employees.
Outside sales people and many technology employees are also exempt from overtime pay requirements. After all, it would be crazy to require employers to pay overtime to top corporate executives already making hundreds of thousands of dollars a year.
Once a business has an employee, it’s critically important to know whether that worker is exempt or nonexempt:
• Nonexempt employees are covered by FLSA and, by extension, most state and city labor laws. They must be paid at least federal and state minimum wage and receive overtime pay of 1.5 times their regular hourly rate when they work more than 40 hours in a week.
• Exempt employees are not entitled to overtime pay, but must meet certain criteria for pay and job responsibilities.
In 1975, FLSA overtime provisions protected 62 percent of all full-time workers; today, overtime provisions protect only 8 percent of full-time workers. The minimum exempt salary threshold was last changed in 2004, when rules regarding executive and managerial jobs were loosened, resulting in many more employees being legally considered exempt. Some businesses took advantage of these new rules, resulting in some employees being named “supervisors,” especially in fast food and retail jobs, where they regularly work more than 40 hours a week without additional pay.
Many may question the new minimum threshold. After all, a white-collar management or administrative job paying $20 an hour, or about $41,600, may be considered a very good job in many parts of the country. Often, employers and employees alike would view having employees working some overtime to complete tasks or to respond to email as fair, not requiring overtime pay.
Who Can Help You Comply With The New OT Rules?
I think I have only worked for one or two companies with an actual HR department during my 25 years in this industry. Most dealerships and smaller manufacturers in our industry simply do not have an HR department. However, if you do have access to one, start with your in-house HR. If you don’t have in-house HR, but you have a payroll company, start there.
If you need, you can look to HR consultants or employment attorneys to help you make sure you get and stay compliant when the new rules go into effect. In the end, these proposed changes are a big deal with many implications. I can imagine the confusion you may feel, but just read up and research a bit and you should be fine.
While there is a little time left until December 1, the clock is ticking on OT! Boss or beneficiary of the new overtime policy, you should start planning now to make sure you’re in the best possible position when the new rules take effect.