New DOL overtime rules: is your business ready?

By Allison Woodham
Posted 10/6/16

On Dec. 1, significant change will come to over 4 million employees in the U.S. and their employers. Tammy Busby of Hartman, Blackmon & Kilgore was one of the speakers at the South Baldwin Chamber of …

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New DOL overtime rules: is your business ready?

Posted

On Dec. 1, significant change will come to over 4 million employees in the U.S. and their employers. Tammy Busby of Hartman, Blackmon & Kilgore was one of the speakers at the South Baldwin Chamber of Commerce’s Leadership Luncheon on Sept. 29 at the Foley Civic Center explaining these changes and how employers and employees will be affected.

Beginning in December, the federal Department of Labor will implement new regulations to overtime pay for salaried employees making less than $913 per week. Busby only touched on the highlights of a very in-depth law and only focused on for-profit, nongovernment entities. This law will have no impact on commission sales employees.

“What this new rule will do is raise the salary threshold for salary employees from $450 per week to $913 per week,” Busby explained.

The minimum salary level is based on the 40th percentile of fulltime salaried employees in the lowest paid region of the U.S., the Southern region.

“The South will probably always be the determining factor for what that minimum salary level is,” Busby said.

This threshold will be updated every three years.

“This is important for employers trying to consider that change to keep someone on salary or to change them to hourly: be aware that this number will increase every three years,” Busby said. “It will be published by the DOL 150 days prior to the date of change.”

The change only affects salaried employees; there is no effect on hourly employees.

Busby explained there are several options for employers.

“You can keep salary employees if they’re making over $913 per week; you have no issues,” she said. “You can raise an employee’s salary if they are below the $913. The only thing to remember is the salary will have to be recalculated every three years. If you’re talking about a $1,000 salary increase to get them over the salary threshold this year, it may be another $1,000 in three years. If you’re talking about a $6,000 increase this year, it may be $8,000 by three years from now.”

Employers can pay overtime in addition to the employees’ current salary. The employee can be on a salary basis, but anything over 40 hours they will get paid time and a half for.

“You can make the employees hourly and just pay overtime if they go over 40 hours a week,” Busby explained as another option.

The last two options are fairly complicated.

“You can have your employees on a fixed salary; they can work so many hours for an amount of pay and that pay is calculated with an overtime ratio in it,” Busby said. “You, as an employer, are responsible for calculating that salary and making sure it meets those requirements.”

The next option is fluctuating hours.

“Tell employees they’re going to work so many hours and they’re going to get paid a set amount of pay,” Busby said.

Something employers need to be aware of is accounting for hours that are worked outside of the office like checking email or phone calls. That is compensable time.

“If I’m on my way to work and I have to stop by a client’s office and do something for them just because it’s convenient for me, that’s compensable time,” Busby explained. “That record keeping has to be set in some kind of policy so they know they’re getting paid for that time.”

The two most important things for employers in this transition is communication and training.

“You have to be able to communicate to employees what their requirements are, what they’re going to get paid for and how they have to record that time,” Busby said.

Busby said these requirements should be in writing and preferably signed by the employee.

“If not, it’s your word against theirs and as I tell everybody, the DOL is going to go with them, not with you and you’re going to get hit with a fine,” she said.

Next, Busby explained several steps to follow to ensure employers are correctly following the new protocol.

“Identify your employees to reclassify, if there are any,” she started. “Go through your employee list and see who’s getting paid what and if they need to be changed from salary to hourly or hourly to salary. Develop new compensation plans, duties and policies for overtime. That’s going to be one of the most important things and that needs to be done in writing, preferable with a policies and procedures handbook.”

Be sure to provide training regarding these changes.

“You have to be able to communicate with your employees and let them know what the changes are and how they are responsible for maintaining those changes,” Busby said. “Follow up with employees to make sure policies and procedures are being followed; if you just tell them and you’re not doing some type of follow up to make sure they comply, it’s still on you, the employer. Even though you told your employee, you’re not following up with them.”

Other things to think about during this change for the employer are the added benefits to hiring additional workers.

“You can add new workers if you need to so you can take other employees from salary to hourly pay and they aren’t working over 40 hours a week,” Busby said.

Consequences from this are the fees when it comes to hiring new workers, training them to do the work and possible having some backlash from current employees.

These changes also expose employers to more liability.

“It is an employer’s responsibility, so the employer is going to get hit with penalties and fines if they don’t comply with the new rules,” Busby said.

Busby suggested employers to clean up other areas in this process like updating policies and procedures manuals.

“You should look at reclassifying employees if necessary, tighten up overtime and timekeeping policies and improve communication and training,” Busby said.

So how do you know what’s right for your business?

“Every business is different and unfortunately I can’t come in here and tell you, ‘This is what we’re going to do and this is how we’re going to do it,’” she said.