|Dear Valued Clients and Friends,
Originally, we had planned on sending out a final reminder to clients about the new overtime rules that were scheduled to go into effect on Dec. 1, 2016; however, late yesterday a federal court issued a preliminary injunction to block the U.S. Department of Labor’s (DOL) new overtime regulations. Many see this as a temporary delay for the rules, and there is a lot of uncertainty at this point, but here is what we do know:
- If you are an employer that has already planned changes in order to be compliant with the new rules, we would not recommend changing course due to this temporary injunction. If anything, this development allows you additional time to make the changes, as the 12/1 effective date never made much sense anyway.
- If you are not familiar with the new rules, or have not yet started implementation of changes to your company policies and pay structure, we recommend reviewing the rules and evaluating what changes need to be made by your company (if any).
- Even if this injunction leads to a complete reversal of the rules, many employers may still need to modify their employment policies and practices – especially with regards to salaried employees, as the existing overtime rules are often not followed correctly.
As a reminder, you can only pay an employee on a salary basis if they qualify meet one of three tests:
- Executive duties: management of the business or a customarily recognized department or subdivision, customarily directing the work of two or more other employees, and has authority to hire or fire, or recommend the hiring, firing or advancement of employees with weighted emphasis.
- Administrative duties: performance of office or non-manual work directly related to the management or general business operations of the employer or employers customers by exercising discretion and independent judgment with respect to matters of significance.
- Professional duties: performance of work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction, OR primary duty is the performance of work requiring invention, imagination, originality, or talent in a recognized filed of artistic or creative endeavor.
The above tests were part of the existing overtime rules and are not affected by the new rules that were supposed to go into effect Dec. 1, 2016, so please be sure to review the job descriptions of any employees that you currently pay on a salaried basis to make sure that you are compliant. If any do not meet at least one of the above duties tests, the employee should be paid on an hourly basis and receive overtime at 1.5 times the hourly rate for all hours worked in a set 7 day work week that exceed 40 hours. You cannot pay an employee on a salary basis simply because it is more convenient.
Feel free to contact us if you have questions or would like assistance with evaluating your payroll practices. For those of you who are curious about the new overtime rules that are currently blocked by a preliminary injunction, below is brief summary:
New Overtime Rules:
- The primary change is an update to the minimum salary threshold that you have to meet before you can pay someone on a salary basis (in addition to the duties test).
- The annual salary threshold of $23,660 had not been updated since 2004 and was very outdated and woefully inadequate. The new rules increased the minimum to $47,476 annually or $913 per week for a full-time worker.
- This means that even if an employee meets one of the duties tests, they cannot be paid on a salary if they are paid less than the minimum threshold. Anyone earning under $47,476 would have to be paid on an hourly basis and paid overtime if they work over 40 hours in a work week.
Some employers are exempt from the new rules, as they only apply to employers having two or more employees with gross receipts of $500k or more. There is also much more fine print, so I recommend reading ADP’s summary if you will be subject to the new rules - http://sbshrs.adpinfo.com/flsa
If a salaried employee is under the $47,476 salary level and they normally work more than 40 hours per work, you have two options:
- Convert their salary to an hourly rate based on 2080 hours per year. Then you would need to pay them 1.5 times that rate for overtime worked.
- Change the rate of pay to include the overtime hours by annualizing their pay and their weekly hours worked and derive an hourly rate that encompasses 1.5 times the hours worked over 40 on average.
Both these options are acceptable by the FSLA.
In order to protect yourself as you adhere to these new overtime rules; we suggest you implement a policy that states that NO overtime will be worked if not AUTHORIZED by the management in charge of that department PRIOR to being worked. This should be in writing and kept by management. Abuse of the policy should carry consequences and should be documented in the employee files. You might consider termination if the rule is consistently abused.
In addition, we suggest you have every employee turn in a signed time sheet showing their actual hours worked on a daily basis. This provides you with signed evidence of the hours you agreed to pay, and any overtime listed can be matched to amounts authorized in advance. This precaution is necessary in order to protect the company should you have to terminate an employee who kept their own time records.
We will continue to monitor developments with regards to the new rules and inform you of any major changes.
For information on the preliminary injunction - http://www.reuters.com/article/us-usa-employment-overtime-idUSKBN13H2JY
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