Don’ t Let Overtime Mistakes Cost You
2016 Issue 2 | GearedUp
28
On May 18, the U. S. Department of Labor( DOL) unveiled updates to overtime regulations. The move comes two years after President Barack Obama directed the Secretary of Labor to update the guidelines.
The final rule more than doubles the salary threshold for eligibility from $ 455 per week to $ 913, or $ 47,476 per year. Included in the overhaul is an automatic update to the salary threshold every three years, which will be based on wage growth. The first automatic update is set for January 2020.
The department, however, did not make changes to the duties test for executive, administrative and professional employees.
Employers say the changes will force them to pay costly overtime or move managers to hourly positions, placing a higher burden on businesses that depend on those supervisors to work longer hours in exchange for other benefits and flexibility. Those changes are expected to hit low- and mid-level managers hardest. By eliminating salaried managerial positions, employees will see little opportunity for growth within a business, sending employee morale spiraling.
Taking effect Dec. 1, 2016, employers have about six months to prepare, but the options are limited to:
1. Pay time and a half for overtime work
2. Raise workers’ salaries above the new threshold 3. Limit workers’ hours to 40 per week 4. Some combination of the above
Expected to extend overtime pay protections to more than 4 million
employees in the first year, the DOL estimated in its 508-page final rule that“ average annualized direct employer costs will total $ 295.1 million per year.”
Exempt employees
Exempt employees may include executive, administrative, professional, outside sales and certain computer-related workers.
Along with the new regulations come an expected rise in FLSA lawsuits; increased media coverage; and closer attorney attention to new practices. To help avoid costly mistakes:
• Examine exempt classifications of the current workforce to ensure by Jessica Loeding
they meet current requirements;
• Pay close attention to those near the salary threshold and those who hold assistant manager or supervisor-type positions; and
• Review policies on overtime and hourly tracking systems as a result of the increased number of employees who will be entitled to overtime.
Misclassification of exempt employees
One of the most frequent mistakes involves treating working supervisors who spend little time managing as exempt.
To qualify as exempt, a manager must supervise two or more employees; have a“ primary duty” to manage a department or subdivision thereof or use independent judgment on matters of substantial judgment; power to hire, fire or give recommendations carrying“ particular weight.” Clarify misclassifications by:
• Reviewing job descriptions and actual duties of each exempt employee to support the classification.
• Making clear in offer letters whether the person is eligible for overtime.
• Explaining how wages and overtime are calculated – commissions, bonuses, etc.
• Considering arbitration agreements with class action waivers to limit liability.
Independent contractor issues
Together, the DOL and Internal Revenue Service( IRS) are analyzing independent contractor relationships. The costs of legal exposure for back wages, overtime, taxes and penalties outweighs any potential benefit.
In 2015, the agency said most workers qualify as employees under FLSA. The