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May 5, 2016

The US Department of Labor’s new Fair Labor Standards Act regulations, which are expected to double the minimum salary for overtime-exempt employees, are coming out any day now and will probably take effect 60 days after their publication.

At the Society for Human Resource Management’s annual Employment Law & Legislative Conference in March, Tammy McCutchen — a former administrator of the DOL’s Wage and Hour Division and now a principal in Littler Mendelson’s Washington, DC, office — offered advice to help HR prepare for the new overtime regulations.

This is her checklist of the most important steps HR leaders need to take:

1. Identify employees who need to be reclassified

Employees who are currently classified as overtime-exempt may need to be reclassified as nonexempt under the new regulations, especially if they:

  • Earn less than $60,000 a year (more than the anticipated level of $50,440 per year because of annual increases);
  • Fall into your company’s two or three lowest pay grades, because this is where misclassifications tend to cluster;
  • Hold the same position occupied by many other employees in the company, because they could be ripe for a collective action; or
  • Work in jobs with which the plaintiffs’ bar has successfully mounted collective actions in the past, such as accountants, assistant managers, sales and sales support workers, help desk employees, customer service representatives, technicians and business analysts.

Now is also a good time to reclassify exempt employees whose duties have changed or who have been misclassified. The new regulations represent a “once-in-a-decade opportunity to shed this horrible liability and blame it on the government,” McCutchen joked.

2. Develop a new compensation plan

Employers should compare the cost of giving raises to employees who are currently exempt but make less than $50,440 per year against the cost of reclassifying those employees as nonexempt and paying them overtime, given the number of hours those employees are currently working.

Another option is a cost-neutral solution under which hourly pay is set at a rate will result in the same weekly compensation as the formerly exempt employee’s salary. This only works if an employer can accurately estimate how many hours per week a reclassified employee will work, cautioned McCutchen.

3. Review wage and hour policies and processes

If exempt employees are reclassified as nonexempt, it is crucial to implement timekeeping processes. Whether it’s with a traditional punch clock or with a more modern smartphone app, the time worked by nonexempt employees must be accurately tracked and documented. In addition, McCutchen advised employers to adopt policies on unauthorized overtime work, meal and rest breaks, travel time and mobile device usage.

4. Communicate the changes

Employers should develop a strategy for communicating any changes in classifications, policies or procedures to employees. HR should identify who will deliver the news, when the news will be delivered, and the format in which the news will be delivered – such as email, one-on-one meetings or video presentations. Talking points and FAQs are a good idea to ensure the message stays consistent, according to McCutchen.

5. Train the reclassified employees and managers

“You might have employees who have been exempt for 30 years, and all of a sudden you have to start tracking their time, or managers who never had responsibility for managing nonexempt employees,” McCutchen said. These two groups of employees must be trained about issues such as:

  • What constitutes compensable working time?
  • What is the company’s policy regarding overtime?
  • What constitutes a complaint that could trigger a retaliation claim under the FLSA?
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