Overtime changes coming

A revision to the U.S. Department of Labor regulations is expected to result in over 5 million more employees soon being entitled to overtime pay. More specifically, the DOL’s proposed rule change will revise current law by requiring that an employee be paid a salary of at least $970 per week ($50,440 per year) or else be automatically entitled to overtime pay.

Currently, the so-called “salary” portion of the overtime exemption test requires a salary of only $455 per week ($23,660 per year). The new $970 minimum salary requirement is also expected to be automatically increased over time. The proposed rule will likely be finalized in late 2016.

Being unprepared for this change will leave many affected employers with no choice but to simply pay higher wages in order to comply. However, by gathering important data now and employing a few simple strategies, smart employers can avoid the painful surprise of a forced increase to payroll costs. Employers should take note of the following:

n It is unlikely that the final rule will set the new salary minimum higher than $970 per week. However, the $970 minimum is expected to increase.

- Advertisement -

n The minimum salary of an employee will not be affected even if the employee is making less than $970 per week, if the employee does not work more than 40 hours in a week. However, the employee’s status will change to “nonexempt,” meaning that those employees will now be entitled to overtime for all work performed on holidays and Sundays.

n Employers who have employees potentially working more than 40 hours per week and making less than $50,440 in salary need to be able to assess exactly how many hours those employees work so that when the new rule becomes effective, the employer can correctly reset the employee’s rate.

n “Working time” includes not only time in the office but any and all time spent doing work. For example, “working time” includes taking calls outside of office hours, staying late, coming in early, working through lunch, traveling to locations that are farther away than the employee’s home base and checking emails at home on a Sunday or after work.

n After gathering the data for employees who will be affected by the change, employers should consider how to adjust compensation. In many instances, the employer can set a new hourly rate, or implement the fluctuating workweek method of payment in a manner that keeps payroll costs relatively the same. However, where the employer has multiple employees in the same position, the tracking data will be more likely used to determine how many hours the job should take and then set the rate accordingly for all employees similarly situated.

n Employers should be aware that hourly employees must continue to be paid the minimum wage, which will be $9.60 per hour as of Jan. 1. Thus lower-paid, salaried employees working a large number of hours will either have to be paid more, or required to work less. Similarly, employers should consider increasing the salary of each employee who is being paid close to the $970 per week standard in order to maintain the exempt status.

While implementation of the final rule change is not imminent, employers should be gathering the necessary data to make smart, strategic compensation decisions and avoid significant payroll increases in the future. •

Alicia J. Samolis, partner, Michael A. Gamboli, partner and chairman, and Jennifer L. Luzzi, associate, are members of Partridge, Snow & Hahn’s employment and labor group.

No posts to display