By: Marc R. Engel, Esq.
The long awaited amendments to the so-called “white collar” exemptions to the federal overtime regulations were finally issued by the Department of Labor (DOL) on May 18, 2016. The effective date of the new amendments is December 1, 2016.
The primary change effectuated by the amendments is to substantially increase the threshold amount of money that employees must earn in a year before they can be considered exempt from the overtime requirements under the executive, professional, and administrative exemptions to the overtime rules. Specifically, the new rules more than double the threshold salary requirement from $23,660 to $47,476.00. Interestingly, the changes do not revise the substantive “duties” tests which also must be satisfied in order for an employee to fall within one or more of the “white collar” (i.e., executive, professional, or administrative) exemptions. The new rules also increase the threshold amount of the “highly compensated” exemption to the overtime rules from $100,000 to $134,004 annually. Further, the DOL reduced the frequency of the automatic increase in the salary threshold from one year to three years. The standard salary level will now be updated every three years to maintain a threshold equal to the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region. The practical and stated purpose of the new rules, according to the federal government, is to significantly increase the number of individuals eligible for overtime pay.
Not surprisingly, the new rules have brought a cascade of complaints from employer groups. Employers should begin preparing now for the changes to the overtime regulations. In this regard, employers should consider the following:
1. Carefully review the job positions and job descriptions of their current employees to determine whether they are being properly characterized as exempt. This undertaking should be done under the guidance and direction of outside employment counsel in order to better ensure that the characterizations are being properly made, particularly in light of the significant consequences of mischaracterization.
2. Analyze which of their employees are currently considered exempt who are earning less than the new salary threshold of $47,476.00.
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3. For employees presently earning slightly less than the $47,476.00 threshold, consider whether it makes sense to increase their salary above the $47,476.00 threshold so that these individuals would be eligible for exemption from the overtime rules if they satisfy one or more of the substantive “duties” tests.
4. In circumstances where previously exempt employees will now be considered non-exempt, decide whether to place limits on the number hours that these individuals can work and, if so, the nature and extent of these limitations. The imposition of limitations on hours that individuals can work will not only have financial consequence to individuals, but will likely have an impact upon employee morale.
5. If a decision is made to limit the number of hours that a (new) non-exempt employee can work, then a decision also needs to be made regarding whether and to what extent to reassign certain work duties to other employees.
6. The availability of overtime pay for employees not previously eligible to receive it should prompt consideration of hiring additional employees to reduce the likelihood that any employee will need to work overtime.
7. The extent to which increased overtime obligations will impact the employer’s financial ability to fund other company benefits.
8. The manner in which to communicate to employees that their status has been changed from exempt to nonexempt.
9. Exploring insurance coverage for overtime claims.
Regrettably, the new overtime rules do nothing to address the significant confusion that the overtime rules currently engender. The new rules will no doubt only add to the confusion and spawn a new generation of overtime claims. Employers that plan now for the overtime changes scheduled to take effect on December 1, 2016 will be better prepared to deal with the legal, financial, and management issues that will accompany these changes.
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Marc R. Engel, Esq. is an employment attorney and litigator at Lerch, Early & Brewer, Chartered where he co-chairs the firm’s Employment and Labor Group and is a member of the firm’s Litigation Group. He advises employers of all types of employment issues (including wage and hour and overtime issues), performs human resource audits, and conducts training on a variety of employment issues, including strategies for defending overtime and compensation claims, and improving hiring, performance management, retention, and avoiding discrimination and harassment claims. He also litigates and mediates employment and business disputes and counsels clients on litigation avoidance strategies. In 2011, Marc was listed in Washingtonian Magazine’s Top Lawyers for Employment Law. He has been recognized as a Top Rated Lawyer in Labor & Employment Law by Martindale-Hubbell, a premier attorney rating organization. He also has been recognized as a Top Rated Lawyer by the Wall Street Journal. For more information about human resource audits or the employment practice, please contact Marc at (301) 657-0184 or by email at email@example.com. For more information about the firm, please visit our website at www.lerchearly.com. This article is not intended to provide legal advice as to any specific matter.
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