Are You Ready for the New Overtime Rules?

Are You Ready for the New Overtime Rules?

If you lost track of time or just did not pay attention, new overtime rules come into force on December 1st. That’s less than 60 days away, and if your organization has salaried workers making less than $47,476.00 per year, then you need to plan for the rule change.

Wage and hour violations can be extremely expensive to fight and challenging to settle. The law will often allow workers to recover three times their lost wages, plus their attorneys’ fees. And most insurance policies do not provide coverage for wage and hour claims. It may be difficult or costly to adjust to the new rules, but facing a lawsuit for violating those rules will likely be much worse.

We wrote about the Department of Labor’s new rules when they were announced back in May (here). Now, it’s getting near the deadline and time to take action if you haven’t already. Let’s start with a refresher on the “old” (current) rule. Until November 30, 2016, employees are exempt from overtime pay if they (i) work in a bona fide executive, administrative, or professional position, (ii) get paid on a salary basis, and (iii) earn at least $455 per week ($23,660 per year). Starting December 1, the first two requirements remain the same, but the salary minimum more than doubles to $913 per week ($47,476 per year).

One thing to bear in mind is that the rules are only changing for the so-called “white collar” exemptions: executive, administrative, and professional employees. These are the most common overtime exemptions, but they are not the only ones. Your industry or your employees may qualify for other exemptions covered by other rules (such as outside sales employees). Consult with your legal advisor for more specific guidance. Please also bear in mind that the definitions of executive, administrative, and professional employees can be challenging legal questions. The definition of pay on a “salary basis” is sometimes tricky as well. These issues will not be addressed in this article, but they are an important part of wage and hour compliance.

At this stage, holding out hope for a last-minute political maneuver to stop these rules is a long shot. It’s true that the industry has vocally opposed the sharp rise in the salary threshold. It’s also true that Congress has proposed a bill to stop the rules and that several states (including Indiana) have joined in a lawsuit to prevent them from coming into force. You should certainly watch the news, but you should also be ready for the likely event that the rules will take effect in December as scheduled.

In order to be ready, look around your workforce. Those salaried workers making less than $913 per week who don’t fall under some other rule and for whom it does not make sense to give a raise will qualify for overtime beginning December 1, 2016.

You may wish to convert them to hourly pay. That will work, but for some employees, that may feel like a demotion. You are free to keep these employees on a salary, but you must have some way to track their hours so that you can pay them overtime if they work more than 40 hours in a week. Companies are using a variety of strategies to make this work, and help is available from employment lawyers and HR consultants to find a method that suits your business.

As with most federal regulations, there are a handful of other special exceptions and details that may be worth considering and factoring into your compliance plan. In fact, when you study your workforce to plan for this new rule, it might be a good time to look at your pay practices and job classifications more broadly to see if anything else needs updating. Businesses never welcome new workplace regulations, but a lawsuit or a government audit is even more unwelcome. Now is the time to get your house in order.

Disclaimer: The THK Legal Blog is for informational purposes only and should not be relied upon as legal advice. In no case does the published material constitute an exhaustive legal study, and applicability to a particular situation depends upon an investigation of specific facts. You should consult an attorney for advice regarding your individual situation. All THK blogs are considered advertising material by the Indiana Bar Association.