Here’s What You Need to be Doing NOW to be Ready for the New OT Rules

May 27, 2016

Now that the Department of Labor has officially revamped the nation’s overtime rules, employers can’t afford to sit on the sidelines and wait to comply until the deadline approaches.

The new rules raise the salary level for employees eligible to receive overtime pay to $47,476 a year from the current $23,660 – a change that will impact just about every employer in the United States. While businesses have until December, 1, 2016 for the rules to take effect, it could take them up to six months to evaluate their employees’ classifications and implement reclassification.

What to do to prepare?  Here are some steps businesses should take immediately. (For more specifics, see “Here’s What You Need To Do To Get Ready For the New FLSA Rules.”)

1. Evaluate all job positions and classifications.

Businesses need to review current employees’ compensation, classifications and the rules around the FLSA exempt versus non-exempt status. Any exempt employee who earns greater than the threshold amount may remain exempt from overtime pay if that person is paid on a salary basis and primarily performs executive, administrative or professional duties as described in the regulations. Those making less than the threshold should be carefully considered for reclassification. Also note that each state may enact regulations that differ from federal regulations. Businesses will be subject to whichever set of directives is more generous to employees.

2. Investigate, monitor and manage hours worked.

When examining how many hours exempt employees work, employers need to take into account the amount of time those employees are spending on mobile devices (laptops and smartphones) outside of the office or during meal breaks. Are employees answering emails after work or on weekends?  Do they sometimes telecommute using mobile devices and, if so, how many hours are they working from outside the office?

If employees are reclassified from exempt to non-exempt, employers will certainly need to keep better track of their work hours (on company premises and off), and monitor schedules and hours worked on a regular basis. One effective way to do that is to implement an automated time and labor management system that continuously tracks hours worked, helps companies monitor when an employee nears the overtime threshold, and makes it easier to create more cost-effective schedules.

3. Compare the costs of pay options.

Weigh the costs of raising employees’ salaries to meet the exemption criteria against what it would cost to reclassify them as non-exempt and pay them overtime when they work more than 40 hours per week. Keep in mind that in calculating pay, you can consider commissions and guaranteed bonuses of up to 10% of base. There are specific rules regarding the inclusion of these supplementals, so check them carefully.

4. Consider the impact on internal pay equity.

Beyond the costs of raising exempt employees’ salaries, consider the impact on internal pay equity. Internal equity means employees are paid fairly when compared with other employees within your company. If you substantially increase some employees’ pay, other employees may have questions about why their pay isn’t increasing.

5. Proactively control costs.

Develop alternative labor strategies that make it possible to shift expensive overtime hours to other workers who can be paid at a regular or lower rate. Monitor fluctuations and patterns in the volume of work, and align employee schedules accordingly, so that work can get done without creating overtime situations.

Considering that wage and hour claims are the area with the highest amount of litigation across the employment law spectrum, this is a prime opportunity for employers to get their houses in order to avoid significant costs and fines in the future.