Introduction
The US Department of Labor (DOL) has recently proposed a change to the overtime rule, setting the minimum wage for exempt employees in the United States at $55,000 annually. This is a significant increase from the previous threshold. The change has been proposed to ensure that employees are fairly compensated for the overtime hours they work. Unlike the minimum wage increases that have been passed at the state or local level in recent months, this proposed change could have an impact across the entire US business and labor market.
Given the scope of impact, it is a good time to do an in-depth explanation of the overtime rule, steps that companies should take now that the change has been proposed, as well as the steps to be taken once the change is approved, regardless of the final numeric value. Equally important is to identify the actions to be avoided as companies adapt to this potential change.
Understanding the Overtime Rule
The Fair Labor Standards Act (FLSA) requires that most employees in the United States be paid at least the federal minimum wage for all hours worked and overtime pay at one and one-half times the regular rate of pay for all hours worked over 40 hours in a workweek. However, the FLSA provides an exemption from both minimum wage and overtime pay for certain employees based on their pay and role in the organization. Those classified as exempt tests must be paid on a salary basis at not less than a certain minimum amount. The new proposed rule affects this salary threshold.
The Importance of Job Descriptions
“Accurate job descriptions are the foundation of effective human resources management. They are crucial for compliance with labor laws, recruiting and hiring, performance management, and compensation planning.” – Johnny C. Taylor, Jr., President and Chief Executive Officer of SHRM.
Properly constructed job descriptions are crucial in navigating changes to the overtime rule. A well-crafted job description clearly outlines the duties, responsibilities, and expectations of a role. This helps in accurately classifying employees as either exempt or non-exempt based on their job duties, which is a key requirement of the FLSA.
Moreover, accurately constructed job descriptions can help protect your company in the event of a dispute or an audit by the Department of Labor. It is much easier to justify an employee’s classification if you have a detailed job description that aligns with the FLSA’s requirements.
Before analyzing the tests that determine exemption status, it is vital to remember that the FLSA has a grounding principle that the rules applied must always be to the advantage of the employee and not the employer.
The Exempt Duties Test
To determine whether an employee is exempt from the Fair Labor Standards Act (FLSA) overtime requirements, employers typically look at both the salary level and the nature of the duties the employee performs. The duties tests are used to ascertain the nature of an employee’s job and whether it qualifies for one of the FLSA’s exemptions. Here are the primary duties tests for the main exemption categories:
Executive Exemption
The employee’s primary duty must be managing the enterprise or a customarily recognized department or subdivision of the enterprise.
The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent.
The employee must have the authority to hire or fire other employees, or their suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees must be given weight.
Administrative Exemption
The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers.
The employee’s primary duty includes the exercise of discretion and independent judgment concerning matters of significance.
Professional Exemption
Learned Professional
The employee’s primary duty must be the performance of work requiring advanced knowledge, predominantly intellectual in character.
This advanced knowledge must be in a field of science or learning.
The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.
Creative Professional
The employee’s primary duty must be the performance of work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor.
Computer Employee Exemption
The employee must be employed as a computer systems analyst, computer programmer, software engineer, or a similarly skilled worker in the computer field.
The employee’s primary duty must consist of:
- Application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications.
- Design, development, documentation, analysis, creation, testing, or modification of computer systems or programs.
- Any combination of these activities.
Outside Sales Exemption
The employee’s primary duty must be making sales or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer.
The employee must be customarily and regularly engaged away from the employer’s place or places of business.
Each exemption has specific criteria that need to be met. Employers should be careful and thorough in their evaluation to ensure they follow the FLSA. If there’s any uncertainty, it’s always wise to consult with an employment law specialist or the Department of Labor’s guidance materials.
Steps to Take Now
According to a survey conducted by the Society for Human Resource Management (SHRM), 67% of organizations said that keeping up with changes to wage and hour laws is a challenge. This statistic highlights the importance of proactive planning and clear communication when navigating changes to laws such as the overtime rule.
Review Employee Classification
Ensure that all your employees are correctly classified as either exempt or non-exempt. This is a good time to thoroughly audit all job descriptions and duties to ensure they align with the FLSA’s requirements.
Analyze Financial Impact
Assess the financial impact that this change will have on your organization. This will involve calculating the increased cost in salaries for employees who are currently classified as exempt but earning less than the newly proposed salary threshold.
Update Policies and Procedures
Review and update your company’s policies and procedures to reflect the proposed changes. This may involve changes to overtime policies, time-tracking procedures, and payroll processes.
Communicate with Employees
Keep your employees informed about the proposed changes and how it may affect them. Transparency is key to managing change effectively.
Steps to Take Once the Change is Approved
Once the prerequisite steps have been taken to prepare your organization for the still proposed changes, there are more actions required once the rule is finalized and has survived the expected legal challenges likely to be litigated in federal court.
Implement New Salary Levels
If the proposed change is approved, you will need to update the salaries of exempt employees who are below the new salary threshold to either meet the new threshold or reclassify them as non-exempt.
Train Managers and Employees
Provide training to managers and employees on the new rules, policies, and procedures. This will help ensure compliance and minimize confusion.
Monitor Compliance
Regularly monitor compliance with the new rules to ensure that all employees are being paid correctly and that overtime is being properly recorded and compensated.
Navigating the Tricky Terrain of Overtime Changes
As organizations brace for potential shifts in the overtime landscape, they must be keenly aware not only of the actions to take but also of pitfalls to steer clear of. Missteps in this area can be detrimental, leading to not only financial repercussions but also diminished employee trust and morale. Here are some crucial actions that businesses should be wary of as they adapt to new overtime regulations:
Misclassifying Employees
It is crucial to accurately classify employees as either exempt or non-exempt based on their job duties and salary level. Misclassification can lead to costly lawsuits and fines.
Ignoring State Laws
Some states have their own overtime laws that are more generous than the federal law. Employers must comply with both federal and state laws.
Neglecting to Communicate
Communication is key to managing any change effectively. Failing to communicate with your employees about the changes and how it will affect them can lead to confusion, frustration, and decreased morale.
Partnering with Mercury Performance Group
As businesses grapple with the proposed changes to the overtime rule, many may find the adjustment overwhelming, especially those with a significant number of employees. Recognizing this challenge, Mercury Performance Group, a company helping organizations of 500 or more employees solve their HR problems, empower their employees, and elevate their performance, offers its expertise.
Mercury Performance Group specializes in offering their extensive experience combined with the tools, knowledge, and strategies to make the transition smoother and more compliant. With their guidance, you can ensure that your company remains not only compliant with regulations but also maintains a positive organizational culture, mitigating potential disruptions.
To benefit from the expertise of Mercury Performance Group and navigate the complexities posed by the new overtime rule, all that’s required is for them to be contacted. Engaging with a professional entity like Mercury Performance Group can make the difference between struggling with the transition and seamlessly integrating the changes into your company’s operations.
In conclusion, while the proposed change to the overtime rule highlights the importance of proactive planning, accurate job descriptions, and effective communication, it also presents an opportunity for companies to reassess and enhance their HR practices. With the right support, such as that from Mercury Performance Group, businesses can confidently navigate this change, ensuring compliance and continued success.