In just two months, the Department of Labor’s final overtime regulations will go into effect. If you haven’t started to prepare yet, you are running short on time. Ensure your company is equipped to handle the new regulations with our compliance planning checklist.
The Department of Labor recently finalized new regulations, which affect the Fair Labor Standards Act’s “white collar” overtime exemptions, raising the salary threshold required to qualify for overtime exemption from $455/week ($23,600 per year) to $913/week ($47,476/year). This new regulation has a number of implications for employers throughout the U.S. In fact, twenty-one states have filed a lawsuit challenging the Department of Labor’s new overtime rule, citing that the new rule will force many businesses to unfairly increase employment costs.
Despite the lawsuits filed against the Department of Labor, the final regulations will go into effect on December 1, 2016. Any business that employs exempt workers with salaries under $47,476 is directly affected by the new rule and should consider a best course of action for each affected employee.
To help you prepare, we’ve compiled a compliance planning checklist. Review the checklist to make sure your company is ready for the new DOL overtime regulations.
√ Identify which employees will be affected.
The employees that may be affected by the new overtime regulations include any exempt salaried employees that make less than $47,476 per year (or $913 a week). You should review the responsibilities and official job descriptions of each job that pays less than $47,476 to see if the primary duties fall on the exempt list, and ensure the job descriptions accurately reflect the main responsibilities. Employers should create a plan for each employee that falls under this category, since they could now technically qualify for overtime pay. Each employee could require a different plan based on their role, salary, classification and the number of hours they work.
√ Inform your HR, Finance, Legal and Executive Teams.
As the deadline for the final overtime changes draws near, it is crucial to clue in all departments that will be effected by the legislation. Finance departments will need to be prepared to make budgetary changes to reflect impending raises and should implement compensation review processes to keep pace with the annual increases. HR teams will have to educate themselves so they can field questions, prepare for difficult employee conversations and coordinate with recruiting for possible turnover issues. Legal teams will need to fully understand the changes and ready themselves for impending compliance issues. Executive teams and all stakeholders should be fully aware of the impact that these new rules will have on their business, so they can provide solid direction in the wake of these changes.
√ Accurately track hours worked.
One of the most important things you will need in order to comply with these new regulations is an accurate calculation of employee hours worked per week. This will require that employers have a time tracking solution capable of accurately collecting employee hours and providing real time reports with the employee’s rate of pay. It will be critical that employers have a clear audit trail of hours worked for a number of reasons. Employers should start recording employee time so they can accurately pay out overtime to newly qualified employees, effectively refute a Department of Labor audit and make informative decisions on how they will handle each employee’s labor situation and compensation going forward.
√ Develop a game plan on how to deal with employees affected by the change.
There are several options for employers to consider when it comes to employees who will be affected by the new overtime threshold.
1. Raise salaries to the exemption threshold: For employees with salaries just beneath the new threshold amount, consider if their value to your company is in line with your current merit increase strategy. If a pay bump is already approaching, you could give them a raise that would bring them up to exempt status. This may make more financial sense than paying unnecessary overtime costs.
2. Reclassify employees and do not limit overtime: Employees who earn a salary beneath the new threshold can be reclassified as nonexempt. Their base salary can be adjusted to account for the extra pay that will come from overtime pay. If employers choose to not limit overtime, they will also incur extra labor costs for each employee. It will be critical for employers to realize precisely how many hours their employees are working to guarantee they organized their new pay structure properly.
3. Reclassify employees and prohibit overtime without approval: If you choose to reclassify employees under the threshold as nonexempt, you will want to establish a policy around overtime hours to control costs. This approach will probably decrease the amount of hours some employees work. This could mean that affected employees may not accomplish the same amount of work, and you will need to hire more employees to make up for the lost time.
√ Develop a communication play for your employees.
With the new regulations only 2 months away, employers should begin to communicate the changes to employees now, so employees are prepared for the potential impact. The communication plan should let employees who could be affected know there is a chance they may be reclassified to nonexempt. Some employees will take this as a demotion, so it should be clearly conveyed that this is not the case and is not a reflection on their performance. Managers should be trained on how to communicate the changes, so they can answer questions from employees appropriately.
Don’t let the new overtime rules catch you off guard. The DOL’s final overtime regulations will go into effect on December 1, 2016. That doesn’t leave employers much time to prepare. Now is the time to assess how your business will be affected and develop a strategic response.