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New Overtime Pay Law – What you need to know

New Overtime Pay Law – What you need to know
DOLOvertimeLaw

On May 18, 2016, the U.S. Department of Labor announced a major change to the law governing overtime pay. As an employer, here’s what you need to know.

What is the new overtime pay law?

The new overtime pay law significantly increases the number of people who qualify for time-and-a-half pay for any hours they work beyond 40 in a week. Under the new law, salaried employees making less than $47,476 a year must now track their time and be paid overtime for any hours worked over 40 in one week. This new protection applies to almost anyone making less than $47,476, including salaried managers or professionals.

How does the new overtime law effect my workplace culture?

While some of you reading this are rightfully concerned about the hard costs, there are other morale and cultural considerations that are significant. Here are a few:

Time Tracking

Time Tracking

Employees currently exempt that do not meet the new compensation threshold will need to be bumped up or become non-exempt and be eligible to receive overtime, including time spent checking and responding to emails outside working hours. Many exempt employees don’t want to be non-exempt. They don’t want to track their time, and don’t want to watch the clock as it makes them feel like less of a professional.

Remote Employees

Remote Employees

Remote or virtual workplace cultures are also impacted. If your remote employees were exempt but now do not meet the threshold, they will now need to track time and be paid for overtime.

 

Benefits

Benefits

Based on your policies, the newly classified employees may be eligible for different benefits plans, PTO policies.

Communication/Change Management

Communication/Change Management

Never underestimate the power of both. Get ahead of the 12/1/16 date and start creating a clear, transparent communication plan now. It may also be time to take a look at all of the total rewards offered not just compensation, to communicate all of the rewards in existence for your teams.

Does the new overtime pay law apply to my employees?

Under the new law, almost anyone making less than $47,476 per year is eligible—regardless of title, job description, or managerial status.

The main exceptions are those who aren’t covered by the Fair Labor Standards Act (FLSA), the federal law that sets overtime rules and other labor standards like the minimum wage.

  • If your company makes at least $500,000 in annual sales, or your organization has customers in multiple states, you are probably covered by the new overtime law (assuming that even one of your employees make less than $47,476 per year).
  • If your business does not meet either of these criteria—for example, most nonprofits doing charitable work—then you may not be covered by the new law, regardless of how much your employees are compensated. The Department of Labor has details on who is covered by the FLSA found here: https://www.dol.gov/whd/overtime/final2016/nonprofit-guidance.pdf.
  • If some of your employees make $47,476 or above, they may still be eligible for overtime if they are paid by the hour, or if their job duties are not those of a bona fide professional, executive, or administrator, as defined by the Department of Labor.

 

What about bonuses and incentives?

Yes, bonuses and incentives may account for up to 10% of the new salary level which means organizations should use this as a time to revisit pay for performance programs, commissions, and incentive plan.

 

Does the new overtime pay law affect managerial and salaried employees?

Yes. The changes in the new overtime law are specifically intended to protect people who are paid a weekly, biweekly, monthly, or annual salary. Now, anyone making less than $47,476, regardless of whether they are salaried or hourly, is guaranteed eligible for overtime pay if they are covered by the FLSA.

 

When does this law go into effect?

The new overtime law goes into effect December 1, 2016, which gives organizations and businesses approximately 6 months to adjust their pay practices and employee classifications.

 

Why was the threshold set at $47,476 per year?

The Department of Labor set the overtime salary threshold at $47,476 — or $913 per week — to be equal to the 40th-percentile salary for workers in the lowest-wage Census Region, currently the South.

 

Why was the HCE (highly compensated employee) exemption wage increased to $134,004 per year?

The Department of Labor increased annual compensation requirement for highly compensated employees (HCE) — subject to a minimal duties test (no change to this test from current standards) — to the annual equivalent of the 90th percentile of full-time salaried workers nationally, which is $134,004.

 

Will the thresholds be increased in the future?

Both the new minimum salary and the HCE will be adjusted every three years based on wage growth projections.

What do you need to do now?

So what should you do now? Here are some initial steps you can take to get a handle on structural and budgetary impact of these changes:

  Impact Analysis: Review current compensation and identify the employees who will be affected.

Conduct Job Evaluations: Review job descriptions and duties and ensure proper classifications exist.

 Review your Compensation and Total Rewards Plan: Take this as an opportunity to look at how you are rewarding your team based on not just compensation, but work/life balance programs, benefits, career development, and incentives.

Revisit Incentive and Commissions: Consider options for those employees that are eligible.

Communicate: Create a clear internal communication and change management plan that aligns with your culture for all audiences.

Keep Track of Work Hours: All nonexempt employees should be set up to clock in and out, trained on how and when to log time, and timekeeping records should be audited regularly.

Manager Training: Managers should be trained on how and when employees need to be tracking time, and should have a clear understanding of the importance of compliance with the DOL regulations. Employees will have questions, and arming your managers with clear answers will help prevent confusion or noncompliance in the long run.

Should I seek help?

Lastly, and most importantly, don’t hesitate to seek help. These rules are complex, and there are serious financial consequences if you are found to be in violation of them. Equally as important is the impact to engagement, and how the new rulings affect how our teams work.

livingHR’s team of compensation, compliance, total rewards, and cultural experts are here to help! We understand the potential total impact and can help review current structures, re-design compensation and total rewards programs, create clear communication plans for the employees, and train managers and employees on the new regulations.

Contact Us!