I started writing about the Department of Labor’s upcoming revisions to the overtime regulations nearly a year ago. For those who haven’t heard, the plans are to update the salary threshold for “white collar exemption.” The current level is $455 a week (about $23,660 a year).
The latest word I’m hearing is that the new rules will likely be published by July, and possibly even sooner, with employers having 60 days to implement them. If you haven’t yet started looking at your options, your time is growing short!
Changes to the salary threshold
A bit of background: generally employers have to pay overtime when someone works more than 40 hours in a single workweek, unless the employee meets certain criteria. The first of these is the “salary test.” This means the employee must be paid on a salary basis — in other words, their pay does not fluctuate depending on their hours worked or production level, as it would with hourly or piecework pay. And that salary must be greater than a certain threshold.
The problem is, the current threshold of $455 per week has been in place since 2004, and now represents a salary that’s below the poverty line for a family of four. So the DOL has proposed to update this salary threshold to a level more reasonable for today’s market.
When the news of the upcoming updates first came out, the DOL said they were thinking of updating the threshold to $970 per week, or $50,440 a year. In the past day or two, rumors have surfaced this new threshold will possibly be closer to “about” $47,000 a year, which would translate to more like $905-$910 a week.
In any case, when a company is subject to the Fair Labor Standards Act (FLSA), employees who make less than the threshold amount (whatever it is) — no matter what their job duties might be — must be paid overtime if they work more than 40 hours in a workweek.
Duties Test may be changing, too
Once an employee passes the salary threshold, a “duties test” applies. The employee’s job duties must meet certain criteria in order for them to be considered exempt from overtime. It’s important to keep in mind, it’s the actual job duties, not the job title, that matters here. The example I often use is: you can have someone called the “Senior Director of Internal Sanitation” and pay her $75,000 a year, but if her job is to empty wastebaskets and sweep the floors, she’s still going to be due overtime if she works more than 40 hours in a single workweek.
There is still no word on what changes — if any — the DOL will implement for the “duties test” for those employees whose salary passes the threshold. There had been some talk that they might adopt a California-style rule, where at least 50% of an employee’s time would have to be spent on exempt-qualified duties in order for the employee to be considered exempt from overtime. This is far from certain, but it’s very likely you will not be able to claim someone is exempt if they only spend a tiny fraction of their time working on exempt-qualified duties, while the vast majority of their time is spent on non-exempt tasks.
The last minute has arrived
The new rules went to the Office of Management and Budget for review last month. Most experts expect to see them published no later than July, with some even predicting they might be published as early as this month.
This means your time to prepare is growing short. You need to take action right away to avoid being caught by surprise when the new rules come out.
First, since we don’t know the final salary threshold, to be safe you should take a look at all the exempt employees you currently have who are making less than $470 a week in salary. In this article, I outlined some alternatives for how you can deal with the upcoming changes. TL;DR — you essentially have three choices:
- Increase employee pay to meet the threshold so employees continue to be exempt from overtime;
- Take action to minimize labor costs to make up for the additional overtime you may now be required to pay;
- Reclassify your employees who make less than the new threshold, pay the overtime when it’s incurred and let the chips fall where they may.
Read the article for more information on your available options for reducing labor costs, plus information about a possible special cost-cutting payroll calculation rule that you might be able to use, depending on your circumstances.
Another thing to do right away: since there may be changes to the duties test, as well, it’s important to make sure all your job descriptions are up-to-date and accurately reflect what people actually do. Remember, once they’ve meet the salary threshold it’s what they actually do day to day, not their job title (or even your written job description), that will determine if they’re entitled to overtime pay or not.
And finally, you should also install a time tracking system (if you don’t have one in place already), and have all your employees — even the ones currently classified as “exempt” — clock in and out every day. (It’s legal to have salaried exempt employees clock in and out, as long as you don’t use their time to calculate their paycheck.) This will give you a better idea of what your potential overtime liability might be if some of your workers need to be reclassified as overtime-eligible. Gathering this information now will enable you to make a better-informed decision of how to respond when the new rules come out.
Fortunately, Acroprint has one of the industry’s widest selections of time-tracking solutions, including everything from rugged mechanical punch clocks to sophisticated cloud-based time and labor tracking. This means we’re sure to have something to fit almost every work environment and budget. Visit our web store to view our entire product line, or give us a call at 800.334.7190 and let one of our trained Customer Care representatives help you select the perfect solution for your business needs.