UPDATE: On November 22nd, a federal judge issued a preliminary injunction blocking the implementation of the new overtime regulations that are discussed below. The Department of Labor has announced they will appeal the ruling. Stay tuned for further information.
While employers often bestow December gifts on their employees, this year’s biggest presents come courtesy of the Department of Labor. Effective December 1, 2016 many of America’s workers who have historically been classified as exempt will either receive raises, or become eligible for overtime compensation.
Employers who have relied on the “White Collar” Exemptions (the Executive, Administrative and Professional Exemptions) to avoid the payment of overtime may need to give substantial raises if they wish to maintain their employees’ exempt status. At present, such employees must be paid a salary of at least $455 per week, or $23,660 per year. But, effective December 1, those thresholds will rise to $913 per week and $47,476 per year, impacting an estimated 4.2 million employees. Additionally, the thresholds will now be raised every three years to account for inflation.
Per the Department of Labor, employers whose workforces are impacted by these changes have four main options:
A. Pay time-and-a-half for overtime work.
B. Raise workers’ salaries above the new threshold.
C. Limit workers’ hours to 40 per week.
D. Some combination of the above.
Of course, employers electing option C may find they need to hire more employees in order to timely complete work.
In order to make informed decisions about which of the options to elect, it is imperative that employers understand how many hours their exempt employees are currently working, including time spent after hours on phone calls and email. Employers can then calculate whether they would be better off financially raising salaries or paying overtime. Additionally, the time between now and December 1 should be used to review exempt employees’ job duties to be certain they have been properly classified, and to review and revise overtime policies.
Beyond the legal issues, employers may find the changes present challenges for productivity and morale. Formerly exempt employees who are limited to 40 hours may struggle to carry the same workloads as when they were not subject to hour limitations. Should such employees be disciplined, or should they have certain duties removed? If formerly exempt employees are going to be allowed to work overtime, should employers reduce their hourly rate to account for the additional compensation they will earn during extra hours? Will formerly exempt employees view their move to nonexempt status, with the corresponding need to account for time and potential loss of duties as a demotion?
Don’t let December 1st and the many questions it presents catch you by surprise. The employment attorneys of Strong & Hanni are happy to assist you.
By Michael D. Stanger, Esq.