What Are Good Questions To Ask Employees In One-On-One Meetings New White Collar Overtime Exemption Rules Are Coming, Now What?

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New White Collar Overtime Exemption Rules Are Coming, Now What?

As of December 1, 2016, employers will have to pay more to take advantage of the so-called White collar overtime exemptions in the Fair Labor Standards Act (FLSA). To prepare for the upcoming change, employers need to know if and to what extent they will be affected by the new overtime exemption regulations.

The new rules primarily address the minimum salary and compensation levels required to qualify for executive, administrative, professional and computer employee exemptions to the FLSA. Employers can ask the following questions to determine the potential impact of the new overtime rules before it’s too late.

Are there employees classified as exempt under one of the FLSA’s white collar overtime exemptions? Otherwise, you should not be affected by the higher basic salary level under the new rules. If yes, continue to the next question.

Do any of these employees work more than 40 hours a work week? Otherwise, you should not be affected by the higher basic salary level under the new rules. If yes, continue to the next question.

Do any of these employees earn less than $913 per week? (This will increase to $1,826 per week, $1,978 per month, $3,956 per month or $47,476 per year.) Otherwise, you should not be affected by the higher standard salary level under the new rules. If yes, the exemption classifications or compensation methods must be adjusted before December 1, 2016.

The most appropriate adjustment(s) will often depend on specific circumstances, such as the number of new exempt employees, their wages, how often they work overtime and whether how much they work. Depending on their situation, employers may decide to implement one or more of the following changes.

Increase the salary. Perhaps the simplest and least disruptive adjustment would be to increase the wages of exempt white collar employees to no less than $913 per week. Unfortunately, this may also be unrealistic for many employers. Even if the salary increase is small, some can more than double.

Those who choose this option should remember that exempt status requires more than meeting the new minimum wage requirements. Primary job duties remain relevant under the new rules and employees must still satisfy the applicable “standard duties test” to be exempt.

Pay the New No-Free Compensation Employees Overtime. The alternative to raising wages is to reclassify these exempt employees as overtime-eligible employees. Those who work more than 40 hours in a work week must be paid one and a half times their regular wages. Remember that employers must track the daily and weekly hours worked by all unpaid employees, including new unpaid ones.

Paying overtime compensation may not be a problem for employees who rarely work or who work very little overtime. Despite paying more for occasional overtime work, it’s still cheaper than a raise. The same cannot be said about employees who work regularly or who work a lot of overtime. Their overtime pay can increase quickly, possibly approaching or exceeding $913 per week.

Overtime Prohibition. New nonexempt employees may be prohibited from working overtime. If no overtime is worked, no overtime pay is required. This option may be simple, but it is not easy. Exempt employees usually work more than 40 hours in a work week because they have more than 40 hours of work to do. Their work still had to be done, but someone else had to do it.

Adjust Personnel, Schedule or Assignments. Those who prohibit overtime may need to make various operational changes. For example, workload distribution and workforce scheduling may need to be adjusted to compensate for the loss of overtime work. In some cases, new employees may need to be hired to make up for any lost productivity.

Adjust Wages. New nonexempt employees who are allowed to continue working overtime as always earn more money for the same amount of work. Reallocating regular wages and overtime pay is one way to keep working hours and the amount paid to new exempt employees the same. However, employers may not reduce an employee’s hourly wages below the highest applicable minimum wage (federal, state, or local) or continuously adjust wages each workweek to manipulate the regular rate.

Employers shouldn’t wait too long to start planning. It takes time to change exemption classifications and compensation procedures, especially if they are large or complex. With all the publicity, it is safe to assume that the violations will be noticed not only by those affected by the new rules, but by the Department of Labor as well.

To protect against the uncertainty and confusion surrounding the new rules, employers may benefit from having Employment Practices Liability Insurance to protect against a variety of employment-related claims. Limited coverage for wage and hour claims may apply.

Employers should discuss the new overtime exemption rules with HR, payroll/accounting, managers and supervisors. Specific wages and training hours should also be considered. Please contact us if you would like more information about preparing for the new white collar overtime exemption rules.

To receive regular updates on developments that may affect your business, subscribe to The Human Equation’s biweekly news brief.

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