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May 13 — Employers should be taking steps now to plan for the release of the Labor Department's overtime rule, which could occur “any day,” Jeffrey Brecher, a principal at Jackson Lewis, told in-house corporate counsel at a conference May 12.
The rule, which will make it easier for employees to qualify for overtime pay, will affect “a massive number” of workers, he said. The biggest impact will be in the retail and hospitality industries and in nonprofit organizations, as well as among middle managers and workers in the South, where pay tends to be lower.
The controversial rule is under final review at the White House Office of Management and Budget (92 DLR C-2, 5/12/16). At present, workers who earn more than $23,660 per year are exempt from overtime if they perform managerial or professional duties. The final version of the proposed rule (RIN:1235-AA11) likely will increase the salary threshold of the white collar overtime exemption to about $47,000 and index it to inflation each subsequent year.
The new salary threshold could result in as much as $1.2 billion in additional overtime pay during the first year it's in effect, the DOL has predicted (125 DLR AA-1, 6/30/15).
Even though it's not clear yet what the new salary threshold will be or when it will take effect, companies should take steps now to plan for implementing the new rule, Brecher advised.
First, an employer should identify the workers who will be affected. Employers who weren't keeping track of exempt employees' work hours should start doing so right away so they can predict how much overtime they'll have to pay in the future.
An employer could try to avoid overtime costs by hiring more part-time workers. For example, instead of having one worker put in 60 hours per week, an employer could hire two part-time workers for 30 hours each.
Another option for limiting overtime expenses is to give raises to employees whose pay hovers just below the new salary threshold.
Brecher identified many challenges that could arise. The most obvious is cost. An employer may have to reduce fringe benefits or decrease the amount of raises for other employees to offset the extra pay for the newly covered employees. “A business is not just going to find money,” he said.
He also said that giving raises to some employees to keep them from qualifying for overtime under the new salary threshold could have a “ripple effect” if workers slightly above the new threshold also expect a raise.
Furthermore, it could be difficult to keep an accurate count of the time worked by employees who use electronic devices away from the work site. For this reason, Brecher said he often counsels employers not to give non-exempt employees access to the company's computer system from their home.
Employers may need to invest in new timekeeping systems, he said.
The new rule also could damage employee morale. A worker who never received overtime before may wonder why the employer wasn't paying him overtime all along. For other workers, particularly low-level managers, “it will feel like a demotion,” Brecher said. He suggested employers explain to employees they are implementing the changes in response to Labor Department rules.
Brecher predicted “a lot of pushback is coming,” particularly from the hospitality industry and employers in the South. “For the nonprofits, this could be a problem,” he added.
Once the rule is issued, Brecher predicted the DOL will allow longer than the customary 60 days for employes to come into compliance because the rule is so “major.”
Issuing the new rule gives the DOL an opportunity to clarify a confusing provision. “I hope they do provide additional examples” of jobs that qualify for the computer professional exemption, Brecher said. The exemption predates the Internet, so it didn't contemplate many contemporary job functions, he said. Help desk personnel generally are non-exempt but for other types of computer jobs, “it's a very gray area.”
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