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THE NEW OVERTIME RULES A Tale of Consequences & Unintended Consequences

Department of Labor Announcement On July 6, 2015, the Department of Labor announced a proposed rule that would extend overtime protections to nearly 5 million white collar workers within the first year of its implementation. The justification as stated in the DOL announcement: http://www.dol.gov/whd/overtime/NPRM2015/

“Failure to update the overtime regulations has left an exception to overtime eligibility originally meant for highly-compensated executive, administrative, and professional employees now applying to workers earning as little as $23,660 a year. For example, a convenience store manager, fast food assistant manager, or some office workers may be expected to work 50 or 60 hours a week or more, making less than the poverty level for a family of four, and not receive a dime of overtime pay. Today’s proposed regulation is a critical first step toward ensuring that hard-working Americans are compensated fairly and have a chance to get ahead.”

In support of the proposed measure, Ross Eisenbrey, vice president of the Economic Policy Institute, said, “Salaried people who are currently working overtime will work fewer hours. Their hours will be shifted to hourly workers, paid less, who need the work. It’s a win win for the workforce.”

The foregoing sentiments are not shared by all. More on that in a bit. First, let’s look at the details of the proposed expansion of overtime rules. What’s the Deal? The key element is a raise in the threshold at which salaried workers qualify for overtime pay. Currently, that benchmark sits at $455 for a 40 hour workweek. It would be bumped by more than 200% to $970. Do the math and you find that a relatively modest management salary of a few dollars north of $50,000 now qualifies for time and one-half overtime pay for each hour worked in excess of 40 hours per week. Under the current rule, most salaried workers are not eligible for overtime once their salary exceeds $23,660 annually.

That’s how 5 million white collar workers are affected. Questions include how will they be affected … more compensation, less hours, change in status from exempt to non-exempt, or?

Intended Consequences

“Of course, nothing helps families make ends meet like higher wages...We still need to make

sure employees get the overtime they’ve earned.”

– President Barack Obama, State of the Union Address, January 20, 2015

The President’s comment sums up the issue as he sees it. In a White House Briefing Statement https://www.whitehouse.gov/the-press-office/2015/06/30/fact-sheet-middle-class-economics-rewarding-hard-work-restoring-overtime the issues were described as follows:

Middle class economics means that a hard day’s work should lead to a fair day’s pay. For much of the past century, a cornerstone of that promise has been the 40-hour workweek. But for decades, industry lobbyists have bottled up efforts to keep these rules up to date, leaving millions of Americans working long hours, and taking them away from their families without the overtime pay that they have earned. Business owners who treat their employees fairly are being undercut by competitors who don’t. Among the concerns cited is the erosion in the value of overtime pay due to inflation. The estimate is that at current overtime thresholds, overtime pay is 40% of its former purchasing power. At $455 per week, or $23,660 per year, the current threshold is below the poverty level. The solution is to raise the threshold, plus prevent a future erosion of overtime by automatically updating the salary threshold based on inflation or wage growth over time.

Unintended Consequences Business critics of the proposal contend that any regulatory change to wages or salaries invariably leads to a re-evaluation of staffing needs and allocation. Especially hard hit will be small/mid-size businesses and those engaged in retail and hospitality. Initial reactions from the National Retail Federation is typical. Below is a summary. Click here for the full report. https://nrf.com/resources/retail-library/rethinking-overtime

For every action there is a reaction. That’s so in this instance as well. Employers have a number of possible ways to deal with this extension of overtime regulation. Here’s the rundown on a few.

Change how staffers are paid: The issue is particularly difficult in businesses that rely heavily on managers. Managers could be switched to hourly status or raise their salaries to exceed the anticipated new threshold. In the former approach, hourly pay rates would be set to maintain both the number of hours currently being worked annually to yield the same compensation level they now enjoy. Hire additional workers: This step would include a limitation on the number of hours an employee may work, i.e. not to exceed 40. That means more employees, but all on straight time. The other advantage is one of cost-effectiveness for employers as new workers may command less compensation. Eliminate perks: Bonuses and personal tasks on company time may be curtailed … perhaps with a corresponding negative reaction in employee morale and productivity. Increased productivity: This may be accomplished by a more strict budgeting of overtime. For example, by limiting time managers may engage in non-company activities on company time can save time for productive tasks at straight time rates. Another that is being contemplated is limiting hourly workers’ access to email. That means to not download email to their personal devices and not accessing email after hours. A West Coast firm has gone so far as to shut down email on weekends and between 10 pm and 6 am on weekdays. Summary The DOL invites written comments through September 4, 2015. That said, the fact is the change is coming. So business decision-makers need to explore the likely effects on their enterprises and formulate strategies plus specific plans to best deal with the realities and minimize any potential blows to profitability, productivity and makeup of the workforce.

FLSA (Fair Labor Standards Act)

DOL’s final overtime rule moves forward: What’s next?

by Christian Schappel March 16, 2016 Comments (0)

Get ready: The DOL’s final rule revising the white-collar overtime exemption regulations has advanced. So employers now have a pretty good idea of when it’ll go into effect.

The DOL just sent the final rule to the White House’s Office of Management and Budget (OMB). This is the final step before the rule is published and made public for all to see.

If the OMB follows its normal review timeline, it should be approved in four to six weeks (although, it could take months).

So if it sticks to its normal schedule — and there’s no reason to think it won’t — employers should be able to get eyes on the final rule by early- to mid-May.

Avoid Congressional roadblocks

The fact that the rule is already in the OMB’s hands means it’s most likely to avoid an entanglement with the Congressional Review Act, which HR Morning broke down last month. In fact, the act may very well be the reason the rule was submitted for review much earlier than originally anticipated.

In a nutshell, the act allows Congress to disapprove “major” final rules promulgated by federal agencies — like the DOL. But the disapproval can be shot down by a presidential veto — meaning the FLSA changes were highly unlikely to be challenged during President Obama’s tenure.

However, the act states that if a major rule is is submitted to Congress with fewer than 60 session days remaining on the legislative calendar, then the next Congress will have a similar 60-day period to consider the rule. And according to recent calculations by the Congressional Research Service, if the DOL’s overtime rule isn’t released by the OMB by May 16, the rule will be at the mercy of the next Congress and president.

Bottom line: The best chance the Obama administration — and the current DOL regime — have of making the FLSA-altering overtime rule stick was to get it on the books before May 16, a deadline they’re now well on their way to beating.

When will it take effect?

Despite some back-and-forth about when it was going to submit the rule to the OMB, the DOL has remained steadfast about one thing: The rules were likely to take effect 60 days after being published, and that still appears to be the plan.

As a result, employers can expect to have to be in compliance with the rule this summer — most likely by the end of July (but possibly sooner).

Still, there’s no way to know exactly what’s in the rule until it is approved by the OMB. But chances are the rule won’t be too far off from what employers saw in the proposed rule.

Here’s a rundown of what was proposed:

• Drastically increasing the FLSA’s salary threshold. As you know, the current minimum salary a worker has to be paid to be exempt from overtime is $455 per week or $23,660 per year. Well, under the proposed rule, it would jump to $970 a week or $50,440 per year. The DOL calculated that $50,440 would equal the 40% percentile of weekly earnings for full-time salaried workers.

• The highly compensated employee threshold will also climb. The total annual compensation requirement needed to exempt highly compensated employees would climb to $122,148 from 100,000 — or the 90th percentile of salaried workers’ weekly earnings.

• The salary thresholds will automatically increase. For the first time ever, the salary thresholds would be tied to an automatic-escalator. The DOL is proposed using one of two different methodologies to do this — either keeping the levels chained to the 40th

and 90th percentiles of earnings, or adjusting the amounts based on changes in inflation by tying them to the Consumer Price Index.

• No changes to the duties tests have been proposed. The DOL didn’t suggest changing the executive, administrative, professional, computer or outside sales duties tests (see

them here) as of yet. However, the agency sought comments on whether they should be changed and whether they’re working to screen out employees who are not bona fide white-collar exempt employees. Early indicators were that the DOL would look to adopt a California-style rule in which employees would be required to spend more than 50% of their time performing exempt duties to be classified as exempt.

• Discretionary bonuses wouldn’t count toward salary threshold. In the proposed rule, discretionary weren’t part of a person’s salary calculation — but that could change depending on the comments the agency received. Currently, such bonuses are only included in calculating total compensation under the highly compensated employee test. But the DOL said some stakeholders are asking for broader inclusion of bonuses in salary calculations.

The DOL received more than 250,000 comments on the proposed rule.

Stay tuned. HR Morning will have a full breakdown of the final rule once it’s published — along with rundown of what you’ll need to do to get in compliance.

The controversial overtime rule is about to come in for a landing

By Dena H. SokolowMarch 28, 2016

The Department of Labor's (DOL) proposed overtime regulations are one step closer to becoming a reality for the American workforce. Once the rule is finalized, an additional five million "exempt" workers will become eligible for overtime. On March 14, the DOL submitted its final version of the regulations to the White House's Office of Management and Budget (OMB) for review, signifying the last step in the regulation becoming law.

“Exemption” from overtime

The Fair Labor Standards Act (FLSA), the federal wage law, requires employees to be paid at least the federal minimum wage and overtimefor any time worked in excess of 40 hours in a workweek. In addition, the FLSA provides strict record-keeping requirements for employees to track their working hours. There are employees, however, that are "exempt" from the FLSA's minimum wage, overtime and record-keeping requirements. Exemption depends upon three things:

a) How an employee is paid: salary basis

The first requirement for exemption is that the employee must be paid on a "salaried basis," meaning the employee receives a fixed, guaranteed minimum amount for any workweek in

which the employee performs any work. Simply stated, there is no change in salary regardless of the hours worked.

b) How much an employee Is paid: salary level/threshold - Salary Level/Threshold

Besides being paid on a salary basis, to qualify for an exemption, the employee currently must be paid a minimum of $23,600 per year ($455 per week). There is also an exemption for "highly compensated employees" who earn $100,000 per year.

c) What kind of work does the employee do? The job duties test

An employee who meets the salary basis and salary level/threshold tests is exempt only if the employee also performs exempt job duties. There are three primary "white collar" exemptions: Executive, Administrative and Professional. Regardless of the job title, the employee must meet each job duty requirement under one of the exemption categories to satisfy this test.

To qualify for exemption from overtime, all three of these tests must be satisfied. Paying salary alone is not enough. A salaried employee is not the same as an "exempt" employee, although the two phrases are often used interchangeably.

The process: How did we get here?

On March 13, 2014, President Barak Obama sent an executive memorandum directing Secretary of Labor Thomas Perez to "modernize and streamline" the overtime exemption regulations. Fifteen months later, on June 30, 2015, the DOL published its proposed changes to the overtime regulations – more than doubling the $23,660 salary level to $50,440 (or $970 per week) and increasing the salary level for the highly compensated exemption from $100,000 to $122,148. Additionally, the DOL also proposed a mechanism to automatically update the salary level annually using a fixed percentile of wages or the Consumer Price Index.

Now the DOL's final regulation is with the Office of Information and Regulatory Affairs (OIRA—pronounced oh-eye-ruh), the division of the OMB charged with reviewing agency regulations. OIRA has 90 days to review the rule, but it can take less time.

When will the final rule be effective?

After the OIRA review, the final rule is published in the Federal Register and employers will have a minimum of 60 days to comply. During those 60 days, the rulemay be challenged under the Congressional Review Act (CRA) by a “joint resolution of disapproval” which, if passed, has the effect of nullifying the regulation. The resolution is subject to a potential presidential veto, which would then require a two-thirds congressional vote to override.

It is extremely unlikely that the new overtime regulation would survive a CRA challenge, as there are not likely enough congressional votes to override a veto. But there is a catch: if a rule is submitted to Congress during a certain period at the end of an administration, there is a renewed review period under the new administration. According to the Congressional Research Service,

rules submitted to Congress after May 16 "will be subject to renewed [CRA] review periods in 2017 by a new President and a new Congress."

What does this mean? If OIRA releases the new overtime regulation after May 16, 2016, the new Administration will have the opportunity to overturn the regulation. The CRA has been successfully used only once to overturn a regulation, one that was finalized under President Clinton and overturned by the Bush administration.

Given the unique carryover provisions of the CRA, the rule is most likely to be released before the May 16th deadline. Therefore, if there is a 60-day OIRA review period, the rule will be published on May 13, 2016 (3 days before the CRA deadline), and the earliest effective date will be July 12, 2016. Bottom line – be prepared for the rule to be released in the spring to take effect in early to mid-summer.

What to do now?

Now is the time to start preparing. Whether you are an established business or a startup, it is important to understand exemptions and its impact on your structure, budget and employees. Although the terms of the final rule have not yet been released, it is unlikely that it will be dramatically different from the proposed rule.

Here are some initial steps to take right now:

1. Identify employees who will need to be reclassified, i.e. current employees who are currently exempt but paid less than $50,440 annually.

2. Determine the number of hours the employee works. This seems simple but exempt employees are not required to track their hours and, therefore, employers may not be fully aware of the hours an exempt employee is working.

3. Analyze the financial impact. Will you raise pay to new threshold level, reclassify as nonexempt and pay overtime, or lower pay to offset overtime requirement?

4. Review job descriptions and tasks of affected positions to determine if certain exempt tasks may be reassigned or maintained with the current position.

5. Consider how pay changes or other changes in job assignments may impact your organization. Will you need to make process or structural changes?

6. Develop administrative plans to ensure compliance when the regulations become official.

Lastly, don't hesitate to seek legal help to ensure compliance and help maneuver through the DOL regulations and classification changes. These rules are complex, and there are serious financial consequences if you are found to be in violation of them. The DOL's budget for FY2017 include $277 million for wage and hour division enforcement, an increase of $50

million from FY2016. Once the rule is finalized, the DOL will send out its auditors to ensure employers are in compliance.

Hang on—it's going to be a bumpy ride.

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THIS ADMINISTRATION IS WORKING OVERTIME ON OVERTIME

15 Million Workers May Qualify

President Obama punched the time-clock on overtime in his 2015 State of the Union address. In his words, “Of course, nothing helps families make ends meet like higher wages ... We still need to make sure employees get the overtime they’ve earned.” Within a few short months, that message was followed with a White House Briefing Statement https://www.whitehouse.gov/the-press-office/2015/06/30/fact-sheet-middle-class-economics-rewarding-hard-work-restoring-overtime that sums up his view of the issue as follows: Middle class economics means that a hard day’s work should lead to a fair day’s pay. For much of the past century, a cornerstone of that promise has been the 40-hour workweek. But for decades, industry lobbyists have bottled up efforts to keep these rules up to date, leaving millions of Americans working long hours, and taking them away from their families without the overtime pay that they have earned. Business owners who treat their employees fairly are being undercut by competitors who don’t.

A week later, the Department of Labor (DOL) announced a proposed rule to extend overtime protections to nearly 5 million white collar workers within the first year of its implementation. That may prove to be only the tip of the iceberg as some estimates anticipate as many as 15 million workers may qualify for overtime protection. One Family’s Dilemma Using an illustrated story-line, the DOL summarizes the plight of an upwardly mobile, hard working, married father of two. Jason puts in long hours to support his family … often in excess of 40 hours per week … but does not qualify for overtime pay. The reason: Jason is categorized as part of management and therefore exempt from overtime rules. Click here for the full story http://www.dol.gov/featured/overtime

For the announcement as posted on the DOL website, read on.

“Failure to update the overtime regulations has left an exception to overtime eligibility originally meant for highly-compensated executive, administrative, and professional employees now applying to workers earning as little as $23,660 a year. For example, a convenience store manager, fast food assistant manager, or some office workers may be expected to work 50 or 60 hours a week or more, making less than the poverty level for a family of four, and not receive a dime of overtime pay. Today’s proposed regulation is a critical first step toward ensuring that hard-working Americans are compensated fairly and have a chance to get ahead.”

Implications for Small & Large Businesses The key element is a raise in the threshold at which salaried workers qualify for overtime pay. Currently, that benchmark sits at $455 for a 40 hour workweek. It would be bumped by more than 113% to $970. This means that a relatively modest management salary of a few dollars north of $50,000 would qualify for time and one-half overtime pay for each hour worked in excess of 40 hours per week. Under the current rule, most salaried workers are not eligible for overtime once their salary exceeds $23,660 annually. Among the concerns cited is the erosion in the value of overtime pay due to inflation. The estimate is that at current overtime thresholds, overtime pay has been eroded by 60% of its former purchasing power. At $455 per week, or $23,660 per year, the current threshold is below the poverty level. Federal intentions are to raise the threshold, plus prevent a future erosion of overtime by automatically updating the salary threshold based on inflation or wage growth over time. Currently, the threshold being discussed is $50,440.

At that level, automatic overtime coverage would kick in for all workers earning a salary of $50,440 or less … regardless of job title, the duties performed or whether the employer chooses to label the position as exempt vs. non-exempt. Employers Weigh In The foregoing sentiments are not shared by all. Business critics of the proposal contend that any regulatory change to wages or salaries invariably leads to a re-evaluation of staffing needs and allocation. Especially hard hit will be those engaged in retail and hospitality. Initial reactions from the National Retail Federation are typical. Click here https://nrf.com/resources/retail-library/rethinking-overtime for the full report.

Recently, the NRF updated its opposition to the ramifications of the DOL’s proposed new $970 threshold for overtime exemption. Click Here https://nrf.com/sites/default/files/Documents/DOL2015_OneSheet.pdf for the details. A one-sentence summary is: The results when the government forces business owners to switch an employee from exempt management to hourly, include:

• Decreased workplace flexibility • Reduced bonuses and benefits • Fewer career advancement opportunities • Reduced hours, and • Less income stability, to name a few.

What’s an Employer to Do?

Some reactions by employers to deal with an extension of overtime rules include: Increased productivity … by a stricter budgeting of overtime and limiting time managers may engage in non-company activities. Change how staffers are paid … switch managers to hourly status or raise salaries to exceed the anticipated new threshold. Eliminate perks … curtail bonuses and personal tasks on company time. Hire additional workers … all on straight time, not to exceed 40 hours per week. None of these or other options are perfect solutions. One intangible factor is the likely negative reactions by employees as reflected in morale and productivity. Summary The future is pretty clear regarding overtime regulations … there will be significant change. The question is when.

Following the President’s and DOL’s announcements last year, expectations were the final rules would be issued early in 2016. In a statement last November, however, the Solicitor of Labor M. Patricia Smith said that the finalized changes to the overtime eligibility rules likely won’t be issued until late 2There’s speculation that the new rules won’t take effect until 2017, after the Presidential election, given the strong employer backlash (270,000 comments received by the DOL during the 60 day comment period ending in September of 2015).

So business decision-makers need to explore the likely effects on their enterprises and formulate strategies plus specific plans to best deal with the realities and minimize any potential blows to profitability, productivity, morale and makeup of the workforce.

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Preparing Business Clients for the New Overtime Pay Rule

By Mike Trabold

In 2015, the Department of Labor proposed a rule that could have a significant impact on the way employers compensate their employees.

This rule proposes changes that would expand the number of workers who are eligible for overtime pay: time and one-half their regular rate of pay for hours worked over 40 in a workweek. Most businesses will be required to comply with the changes once a final rule is released.

Here are five workflow recommendations you can share, that may be critical to your clients’ success and compliance with the new overtime pay regulations:

1. Review and identify employees. Certain employees may not be impacted by the changes, but it will be important to review and

Formatted: Font: (Default) Times NewRoman, 12 pt

confirm employees who are currently classified as exempt from the overtime protections of the Fair Labor Standards Act meet the duties test for their exemption. Counsel your business clients to review their payroll and identify exempt employees with current salaries below or very close to the new proposed salary thresholds for executive, professional and administrative white collar exemptions.

2. Determine which positions will transition to non-exempt status. Once your business clients have confirmed the exempt status of employees most likely impacted by the proposed rule, they will need to decide, by position, how to proceed. Employers have two options: increase the salary level to maintain exempt status, or transition the position to non-exempt status.

Employers who choose to transition positions to a non-exempt status will need to determine the basis for pay (hourly or salaried) and ensure they meet the minimum wage requirement for the number of hours the employee is expected to work. They should also consider whether overtime will be necessary and permitted. As their financial partner, this is a key opportunity to review their finances and determine the appropriate route to take. Consistency within each position can be crucial to mitigating exposure to discrimination lawsuits.

3. Update timekeeping policies. Updating recordkeeping requirements and procedures can be critical to ensure full compliance with the Fair Labor Standards Act and applicable state wage and hour laws. If your clients have employees who will transition from exempt to non-exempt status, they will need to begin tracking all time worked for these employees, including overtime hours. Encourage your clients to review their time-tracking methods and to evaluate the need for more automation. Should the new rule significantly impact the number of employees who need to track their hours worked, an alternative method of tracking, such as time and attendance software, may better suit your clients’ needs.

Your business clients should also establish clear, written employee policies for recording time worked and overtime. These should include the procedure for recording time, what is considered time worked, how overtime is approved and by whom, and the potential disciplinary action for failing to follow the company’s policy. This information should be distributed to all employees or published in an employee handbook.

4. Develop training procedures. Once recordkeeping and overtime policies have been updated, encourage your clients to educate their staff on the company timekeeping and overtime approval procedures. This should be done for supervisors, managers and newly impacted employees, and consider a refresher for current non-exempt employees to ensure the policy is consistently applied. Urge your clients to deliver this training as soon as possible, with supervisors performing regular audits of time records.

5. Create and execute a communications plan. The new rule on overtime pay is expected to impact a significant number of businesses this year. To address the questions or concerns that arise, advise your clients to develop a communications plan for announcing the changes internally. The plan should introduce the procedures for

reporting hours worked, as well as when and where you will communicate the change to supervisors, managers and employees.

One recommendation you can offer is to speak first with managers and supervisors, and then to impacted employees individually. Or, discussing the changes in job classifications or time-tracking procedures with the entire staff might be more appropriate. You know your clients best—offer the guidance that best fits their business, as long as the overall message is consistent to reduce confusion and potential compliance issues in the future.

While these recommendations are not the traditional financial discussions you may have with your clients, they may be important conversations to have nonetheless. As their trusted partner, sharing this information can help their businesses and employees.