Adjusting to the DOL's New Overtime Rules

Experts debate whether the proposed new overtime rules from the Department of Labor will help or hurt the very employees the agency is trying to protect.

Wednesday, July 1, 2015
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At last, the Department of Labor released its proposed overtime rules, which extends overtime pay next year to workers earning a minimum salary of $921 per week or $47,892 annually. However, by the time the final rule is issued in 2016, the DOL estimates that the salary level will climb to $970 per week or $50,440 per year.  

Other proposed changes involve continuously increasing the salary level each year and setting a higher standard for highly compensated employees, from the current $100,000 level to $122,148.

According to a White House press release, the proposed overtime change is expected to impact nearly 5 million workers-56 percent of whom are women and 53 percent of whom have at least a college degree-and better reflect the intent of the Fair Labor Standards Act. The Bush administration last updated the salary level in 2004, to $23,660 ($455 per week). Currently, though, that salary, ". . . is below the poverty threshold for a family of four and only eight percent of full-time salaried workers fall below it," according to the release.

Although the higher salary will minimize potential abuses of exemption, not everything may end up rosy. Paying overtime to millions more workers could backfire, says Kerry Chou, senior practice leader at WorldatWork, an HR association based in Scottsdale, Ariz.

He points to first-line supervisors who perform nonexempt duties but also manage employees by assisting in their hiring, promotions and discipline."From an employee-development standpoint, having the opportunity to be a supervisor and get involved in some of those management responsibilities helps employees develop those skills and demonstrate their ability to be a supervisor," says Chou. "Employers may [now] simply say, 'OK, by law we have to make you a nonexempt employee, so we're not going to provide you with those opportunities . . . and leave the supervision and other management duties to managers."

Other employers may not be able to absorb the significant costs. Chou says some companies may mitigate the expense by preventing employees from working more than 40 hours each week or laying them off.

The industries most affected by the new salary include retail and fast-food restaurants, he says, since their first-line supervisors tend to earn a lower average wage when compared to employees in other industries, such as engineering or technology manufacturing.

He says some employers will make adjustments to employee pay and duties, workforce size, and develop new work rules that make them compliant with the new law. "But at the end of the day," he says, "they may negatively impact the employees [that the DOL rules] are trying to help."

Some labor attorneys believe a higher salary level for exempt workers is long overdue.

"This [may] be the best way to protect the [shrinking] middle class and add some real dollars into the economy in an appropriate way that won't hurt the economy and result in unemployment," adds Gregory J. Kamer, founding partner at Kamer Zucker Abbott, a management labor employment law firm in Las Vegas.

He says large corporations such as Walmart have been easing into offering a higher employee wage over recent months, mainly because it enhances the quality of job applicants and increases employee retention, loyalty and engagement. Hopefully, he says this higher salary level represents the "sweet spot" that's fair to both employers and workers nationwide.

To determine how the this change will impact their company, he says HR professionals needs to perform compensation studies to analyze positions and responsibilities and identify realistic solutions, such as reclassifying exempt workers as nonexempt, reassigning responsibilities, increasing staffing in the managerial ranks or developing work share programs where two supervisors share the same job. He says those discussions need to be taking place right now.

But make no mistake. Every solution will produce a ripple effect.

"If you don't want to pay overtime . . . then you're going to [need] more people employed . . . to not have to work hourly supervisors more than 40 hours a week," says Kamer. "Clearly, the wage will go up or there will be more employment or [job] openings. That can be a hard call."

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Lee Schreter was actually hoping for a lower salary level, between $30,000 and $40,000. As chairman of the board and co-chair of the wage and hour practice group at Littler Mendelson in Atlanta, she says it will create financial hardships for some employers with limited resources in smaller, regional markets. Not to mention that the higher salary may stall the recovering economy.

Her other concerns focus on changes involving duties requirements for white-collar exemptions. But instead of proposing changes, she says the DOL has formally asked employers for input, such as what changes should be made to the duties test, if employees should be required to spend a minimum amount of time performing work that's their primary duty to qualify for the exemption, and if California's law that requires employees to spend half their time on primary duty tasks should serve as a model.

Schreter believes that California's law "flunks," adding that it has spawned a lot of litigation in the state, and that it requires employers to figure out a way to monitor and record the amount of time executives spend performing exempt activities.

Ideally, she would like to eliminate the duties test altogether, but says it's not possible given its current statutory structure. So, for now, she says it shouldn't be changed.

Schreter encourages HR professionals to share their stories with the DOL, local chambers of commerce and trade associations about how much the proposed rules are going to cost their company, the full impact of the salary change on their bottom line, and the time and money that will be spent on analyzing the regulations and informing employees about the changes.

"It's a mistake to focus solely on the salary level," she says, adding that changes to duties requirements may create new legal standards for the courts to interpret. "The changes that have been hinted at [regarding] duties could actually have a more significant business impact than even the salary increase."

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