What Businesses Must Do to Adhere to the New Overtime Rule
June 10, 2016
The Department of Labor announced a new rule that greatly expands the number of administrative and professional employees who may be paid overtime by their employers. The new rule will take effect on December 1, 2016, making it very important that businesses throughout Florida evaluate employee classifications and make any necessary adjustments to comply with the new laws.
A recent survey asked Human Resources managers whether they were prepared to comply with the new rule. Two-thirds said they were not. The survey found that 17% were not even in compliance with the preexisting rule. To avoid noncompliance penalties, preparation to comply with the new overtime rules should start now.
Which Employees Are Covered?
Federal law requires most employees to be paid overtime wages when they work more than 40 hours in one workweek. Certain employees are exempt from the overtime requirement, such as those who primarily perform executive, administrative, or professional duties.
To qualify as a bona fide executive, administrative, or professional employee, the employee must:
- be paid a fixed salary that does not vary with the amount or quality of work performed;
- be paid a minimum salary amount; and
- primarily perform duties that define those categories of employment.
The “duties test” specifies the primary duties that employees must perform before they can be classified as exempt employees. Misclassifying a nonexempt employee as exempt and failing to pay overtime as a result of the misclassification can result in costly penalties as well as liability for back pay.
Changes To Minimum Salary Amount
The current rule sets the minimum salary for exempt employees at $455 per week. The new rule will increase the minimum salary requirement to $913 per week, or $45,476 annually for a full-time worker. The new rule requires the minimum salary to be recalculated every three years, beginning on January 1, 2020.
The duties test is relaxed for employees who are classified as “highly compensated.” Under the current rule, a highly compensated employee is one who earns at least $100,000 per year. Under the new rule, the minimum salary of a highly compensated employee will be $134,004 per year.
Under the new rule, bonuses and certain incentive payments (such as commissions) can be included in the salary calculation, although those payments are limited to 10% of the salary basis. Consult with your business attorney if you are uncertain how to calculate salaries for the purpose of applying the new overtime regulation.
Businesses are not required to change salaried employees to hourly employees if their salaried employees become nonexempt after the rule takes effect. Businesses can continue to pay a fixed salary, provided they pay overtime when the employee works more than 40 hours in a workweek. While you do not need to make salaried employees “punch the clock,” you do need to be sure your record-keeping system (including your record of hours worked by nonexempt workers) complies with federal and state law. Your employment lawyer can help you understand how to calculate the overtime rate for salaried employees and how to keep acceptable time records.
Complying With The New Rule
Some employees who were classified as exempt may need to be reclassified as nonexempt because their salaries fall below the new minimum, or they may not meet the standards for the new exemptions – e.g., highly compensated employees. For those employees, employers will not need to worry about applying the “job test” rule. Employers will, however, need to start paying those employees overtime if they work more than 40 hours in a workweek.
Understanding whether an employee is paid a fixed salary in the minimum amount required to make the employee “exempt” is relatively easy under the new rule. Employers have traditionally had more trouble applying the “job test” rule. Deciding whether an employee’s job duties qualify the employee as exempt from overtime is often difficult.
The best way to assure compliance with the new rule is to examine each salaried employee, job-by-job, to decide whether they should be classified as exempt. Before conducting that audit, the Human Resources manager (or the person in your business who holds an equivalent position) should meet with your employment attorney to gain a better understanding of how the exemption rules apply to your business. While the position-by-position audit is underway, any ambiguity or doubt about how the “job duties” test applies to a particular employee should be discussed with your employment lawyer.
Revise Your Documents
As you conduct your audit, you might want to seize the opportunity to update your business policies/procedures and handbooks, and update position/job duty descriptions. Working with an employment attorney, you should also review other documents — including internal management policies and those that are shared with employees — to make sure that they are consistent with the new overtime laws. Relevant documents include:
- Employee handbooks.
- Overtime policies.
- Compensation and retirement plan policies.
- Payroll record-keeping policies.
- Operating procedures.
- Employment contracts.
If you will be reclassifying employees from exempt to nonexempt as a result of the rule changes, you should develop a written notice to advise affected employees of the change. You might want to develop a similar notice if you are giving employees raises so that you can maintain their exempt status. Your employment lawyer can guide you in drafting those notices.
To begin updating these necessary materials and understand what the new overtime rule requires of you as an employer, contact the employment law attorneys at Chane Socarras, PLLC at 561-609-3190 or firstname.lastname@example.org.
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