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New Overtime Rules – Are You Prepared (Most Aren’t)

Posted on: December 19th, 2016

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New Overtime Rules

Update: 12/19/2016

The Texas AFL-CIO wants to defend the DOL’s position on the new ovetime laws, in the event the Trump Administration pulls the DOL out of the fight. Employers urged to take steps to to be ready. See HR Morning article for details

Update: 11/23/2016

A federal judge in Texas has issued a preliminary injunction on the new Overtime law that supposed to take effect on Dec. 1st. The announcement was made just before the Thanksgiving Holiday. Companies have invested millions of dollars preparing for the new laws, which dodged several attempts to derail it until this injunction.

Read more on the action and its impact

MassPay has found that these efforts have not been wasted. In preparing for the change, many companies discovered that they had improperly classified some employees as exempt. When they looked at salary level, and more importantly, the duties test, these employees should have been classified as non-exempt and eligible for overtime. The new overtime law also prodded companies to look at their smartphone and laptop policies related to work done off-premises or during non-standard business hours, which would be compensable time for non-exempt workers.

We will keep you updated as responses from the Administration and the DOL are issued.

As the new law stood until this most recent development:

  • Salary level threshold was lowered from the original $50,000 to $47,476 (or $913 per week)

There was pre-release talk about this, and it was somewhat expected. This may have been a small concession to business owners, but for the most part, does not make much of a difference.

  • Definition of a “highly compensated” employee rose from $100,000 to $134, 004

This is a significant rise (34%) from the current threshold and will likely impact many workers in the high-tech, financial and medical fields.

  • Duties test not touched

Many thought there would be changes, and the Fed even collected comments, but perhaps it was too much to bite off at one time. Should we look for a phase 2? Only time will tell.

  • A portion of bonuses, incentives and commissions can be applied to the salary threshold

Pre-release notes indicated that this would not be included, but under the new rule, employers will be able to satisfy up to 10% of the salary threshold from “non-discretionary bonuses and incentive payments”, including commissions.

There is a catch. You can’t just apply a bonus or commission at the end of the year. These must be paid on a quarterly (or more-frequent) basis.

  • Salary threshold will be adjusted every 3 years, beginning in January 2020

The annual threshold/weekly salary will be reviewed and adjusted every three years. At a minimum, you will need to review current employee pay levels at each change juncture and determine a strategy for employees pressing against the new threshold.

Details on the new overtime rules from the DOL

New overtime rules Update – August 25, 2016

Critics say the new overtime rule goes “too far, too fast” by raising the threshold more than 100 percent in one jump. As a result, it will disproportionately impact small businesses, non-profits, higher education, and state and local governments.

The Overtime Reform and Enhancement Act (HR 5813) proposes to gradually increase the salary threshold and eliminate any automatic updates. Introduced by Rep. Kurt Schrader (D-Ore.), the proposed legislation would incrementally phase in the new threshold of $47,476 over the next three years, beginning with a 50-percent increase this December. Future increases would need to be proposed through the traditional regulatory process of notice and comment.

While American businesses wait to see what happens, HR would be wise to begin modeling different  scenarios for every salaried employee who falls under the $47,476 threshold. MassPay can help with this via our ASO Services.

For further details on the proposed legislation, see article via Human Resource Executive Online.

What’s not being talked about with the new overtime rules

Beyond the rules (and increased costs for higher wages), there are significant additional “costs” to a business.

This starts all the way back to the job description, where you must properly identify a position as being exempt or non-exempt. In fact, you may need to implement job tiers/levels if some employees doing the same job are suddenly eligible for overtime, while others are not, based on current salary levels and the makeup of your workforce.

See also: Millennials are disproportionately impacted and covered under the new rules (Accounting Today article)

Other “costs” to a business include:

  • Lower productivity – employees will have questions about the law
  • Higher turnover (perception of unfair treatment; change of rates may boost voluntary churn)
  • Lower morale (a change in employee status (i.e. from exempt to non-exempt) will have consequences)
  • Employee unrest/dissatisfaction (changing rates to hourly, or adjusting rate plus OT to get back to same level) will be tricky
  • Collecting work hours for more employees (office and out of office time)
  • Telecommuting and device policies, and better monitoring of hours and activities, will need to be reviewed and further defined
  • Investing your time in analyzing employee pay levels and developing strategies for each employee
  • Rethinking your business model/hiring strategy; will you hire 1 FT person or 2 PT to work around this?

These items are just the tip of the iceberg that businesses will be grappling with between now and the December 1, 2016 implementation date.


About MassPay

MassPay is in a unique position to assist companies with navigating the new overtime rules, and developing the appropriate strategies and communications to reduce these additional costs to the business.

Our ASO services provide businesses with expert guidance on HR/Payroll issues, provide management and employee training and coaching, help develop company policies, performs compliance audits and addresses compliance issues, and implement best practices for recruiting, on-boarding, retention, training and workforce performance.

Contact us to learn more!

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