Implementation of New Overtime Regulations: Are You Ready?
May 20, 2016
On May 18, 2016, the U.S. Department of Labor revised its regulations on overtime pay under the “white collar” exemption. These new regulations are slated to take effect December 1, 2016.
Much has been written about what the revised regulations might look like and the potential impacts on businesses of all sizes. Now that the implementation of the DOL’s new regulations appears imminent, the question is, are you and your business ready?
The revised regulations change the current overtime regulations in three key ways:
- They raise the minimum salary threshold for overtime exemption to $47,476 annually (which equates to $913 per week);
- They declare that up to 10% of the increased salary threshold can be met by nondiscretionary bonuses or commission payments; and
- They provide for automatic updates to the minimum salary threshold every three years.
Even though the revised regulations do not take effect until December 1, now is the time to evaluate your overtime pay policies and procedures. It is expected that the DOL and attorneys will be active in looking for violations of the new overtime requirements. If your business is audited, the investigation will not necessarily be limited to compliance with the new aspects of the overtime regulations, but may encompass all aspects of overtime pay for employees.
The following Checklist is a great place to start your evaluation:
- Review Your Handbook. Determine if the terms “Exempt” and “Non-Exempt” are appropriately defined and review and update your overtime policies. Then, take advantage of the implementation of the new regulations to review your entire Handbook and make additional updates as appropriate.
- Identify Impacted Employees. Determine which of your employees will be impacted by the increased salary threshold and analyze how your business can best handle the change. Should you raise salaries or pay overtime to more people? Should you implement policies restricting or prohibiting overtime without prior approval? Should some of the increased salary be paid in nondiscretionary bonuses or commissions?
- Familiarize Yourself With All Overtime Requirements. Take time to not only become familiar with the new salary threshold and the mechanism for updating the salary levels every three years, but also the “Duties Test” applicable to the White Collar Exemptions. General information on the “Duties Test” requirements can be found online at https://www.dol.gov/whd/overtime/fs17a_overview.htm
- Review Your Job Descriptions. Review whether the employees you classify as exempt meet the “Duties Test”. Are your job descriptions accurate? Are they consistent with your employees’ actual job duties? Do you need to revise job descriptions to more accurately reflect the work done by your exempt employees? If you do not have job descriptions or if they are inconsistent with the actual job duties performed by your exempt employees then it might increase your exposure in a DOL audit or lawsuit.
- Evaluate Time Keeping Methods. Thoroughly review and evaluate your methods used to keep track of employee work time. This is particularly important since exempt employees are generally not required to keep track of time worked.
- Re-evaluate the Classification of Your Independent Contractors. Are they properly classified as independent contractors or are they employees who might now be subject to overtime pay?
- Review Your Defined Workweek. How is your company’s workweek defined? Are there ways to re-define the workweek to minimize the impact of the new overtime rules?
- Be Prepared to Monitor Salary Updates. Develop protocols to monitor three-year updates in the threshold salary. The revised regulations contemplate that new updates will go into effect on January 1 every third year. Your company should be prepared to take action in advance of each update.
- Document. Document. Document. To avoid being a target for an employee lawsuit under the new regulations and to decrease your risk of exposure in a DOL audit, make sure that you have a system in place to maintain accurate records of hours worked by all employees, even exempt employees. Quality documentation will make life easier if you are audited or sued.
- Clearly Communicate Changes in Policy. Communicate all of your company’s policy changes to your employees in face-to-face meetings and in writing. Make sure your managers and supervisors are able to explain all changes to employees and assist in the implementation of all changes. Clear communication on the front end will likely help in avoiding lawsuits and audits triggered by disgruntled employees.
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