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Overtime Regulation Is a Surprise to Many Employers

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Although the Baltimore Washington Corridor Chamber (BWCC) had been briefing its members for months about the U.S. Department of Labor’s (DoL) plan to increase the salary threshold for overtime — and submitted testimony opposing the plan — the May 17 release of the new regulations surprised many business owners and nonprofit managers.

Working with the BWCC’s colleagues at the U.S. Chamber of Commerce, it can share the following overview and links to resources for obtaining additional information.

Overtime Rule

To recap, here are a few of the key details on the new rule.

  • The final rule radically increases the salary threshold under which most employees will automatically be eligible for overtime pay. The current salary level required for exemption is $455 a week ($23,660 for a full-year employee), which was last updated in 2004; the new exemption threshold will be $913 a week, or $47,476 per year. This is nearly a 100% increase. The deadline to comply is Dec. 1, 2016.
  • Employers can take up to a 10% credit toward the salary threshold from commissions or bonuses as long as they are paid at least quarterly.
  • In addition, the change in the salary threshold also includes an automatic adjustment every three years. The adjustment will be tied to the 40th percentile of full-time salaried workers in the lowest wage region of the country (currently the Southeast). The Southeast region includes Maryland, Virginia and the District of Columbia, which to many observers is ironic, as these states have much higher wages than other areas of the country.
  • The overtime rule leaves intact the current “duties test” that employees must meet to be exempt, in addition to being paid a salary above the $47,476 threshold.

Several days after the announcement of the new rule, the U.S. Chamber hosted a webinar session that drew 1,400 participants. Tammy McCutchen, of Littler Mendelson P.C., former wage and hour administrator in the George W. Bush administration, provided guidance on how to comply with the new regulation.

Her informative PowerPoint slides and audio presentation are still available online: Just call the BWCC office or contact it via email for more information on what is required and how to comply with the new requirements.

Chambers’ Efforts

In addition to helping employers decide how to comply with the rule, the U.S. Chamber, the BWCC and other chambers, associations and organizations are still for action on the Protecting Workplace Advancement and Opportunity Act (S. 2707 and H.R. 4773). This legislation would keep the DoL regulation from taking effect and require the Department of Labor to perform a better analysis on the impact that changes to the overtime threshold will have on small businesses, nonprofits, regional economies and local governments in any succeeding proposed rule.

The BWCC encourages businesspeople to contact their members of Congress and request that they add their names as a sponsor to this legislation.

Other points to consider regarding the DoL legislation include the following.

  • Salary thresholds will be adjusted every three years, with notice required to be made 150 days before Jan. 1 of the year of change. Could the threshold levels conceivably decrease? The law says the level must be “updated to equal the 40th percentile of lowest wage census region,” so it could, potentially.
  • Although the effective date is Dec. 1, many states require notice to employees in advance. The most common is seven days’ notice; Missouri requires 30 days notification.

Becoming Compliant

Some suggested steps in the process for coming into compliance are the following.

  • Identify all employees who need to be reclassified.
  • Develop a new compensation plan for those reclassified employees.
  • Review age/hour policies and processes in your handbook and elsewhere.
  • Communicate often and fully with employees.
  • Retrain employees and managers.
  • Calculate the cost of paying overtime versus increasing salary.
  • Begin to manage employees to 40 hours per week.

Employers need to communicate the changes to employees, as those employees who will be changed from exempt to hourly status may likely see it as a demotion — being taken out of management.

Some businesses will reclassify professionals as hourly workers, removing their existing perks, flexibility and certain benefits, such as taking home laptops or other mobile devices, after-hours seminars and training opportunities, loftier job titles, etc. “Comp time,” where employees work overtime in exchange for future days off, is not allowed for those eligible for overtime under the new rules.

In research conducted for the National Retail Federation, Oxford Economics concluded that administrative expenses such as the added costs of tracking hours for more employees and updating payroll systems were estimated to reach $745 million.

For more information and additional resources, contact the Baltimore Washington Corridor Chamber.