It’s September 6, the day after Labor Day, symbolically the end of summer, traditionally the first day of school, and psychologically the beginning of the homestretch on the year.
It’s also 85 days until December 1, which is the effective date of the new federal rule on who qualifies for the white-collar overtime exemptions. If you – as a small employer, or as the person responsible for HR in a company of any size – haven’t become familiar with the new rule and analyzed your workforce to plan your compliance strategy, it is time to stop procrastinating. December 1 will be here before you know it, and your misclassified employees may expose you/your company to claims for unpaid wages, liquidated damages, attorney fees, and penalties.
What is the new rule? The new rule establishes an increased minimum salary for most employees who are exempt from the Fair Labor Standards Act’s requirement of overtime pay – at one and one-half times the employee’s usual hourly rate – for hours worked above forty hours in a workweek. More specifically, workers who meet the duties tests to be classified as executive, administrative, or professional employees must now be paid, on a salary basis, at least $913 per week, or $47,476 per year. Since 2004, the threshold salary has been $455 per week ($475 per week in Connecticut), so this is a big change.
Aren’t all my salaried employees exempt from overtime? No. That is a popular misconception, but the white-collar exemptions only apply to employees who meet the applicable duties tests (summarized here) and who – as of December 1 – are paid at least $913 per week on a salary basis. You can use the advent of the new rule as an opportunity to determine whether your currently exempt employees are actually performing exempt duties. Keep in mind that it is what they actually do that matters, not their titles or what is in their job descriptions.
I have employees who have been properly classified as exempt, but who don’t make $913 per week. What are my options?
- You can raise their salaries to meet the minimum threshold. The new rule also lets you count certain bonuses toward the minimum salary requirement.
- You can continue to pay them a salary for the first forty hours of work per week, and pay overtime for additional hours. You would calculate the regular rate by dividing the weekly salary by 40. This option probably works best for employees who only rarely work more than forty hours per week.
- You can reclassify them as overtime-eligible, establish an appropriate hourly rate, and pay them on an hourly basis, including overtime when required.
- For employees whose hours vary widely from week to week, you may be able to use the “fluctuating workweek method,” under which a fixed salary covers “straight time” for all hours worked, and the employer pays a “half-time premium” for hours above 40. The regular hourly rate actually changes from week to week, depending on the number of hours worked. The US Department of Labor regulation concerning the fluctuating workweek method may be found here. (We strongly suggest that you consult with counsel before implementing a fluctuating workweek arrangement with any employee.)
How can I keep track of hours for employees who don’t punch a clock? It is the employer’s legal obligation to keep complete and accurate time records for overtime-eligible employees. You can use any method you choose to accomplish this. Time sheets, software, punch-clocks, and electronic devices are among your options.
Where can I find additional information? We have blogged on this topic before. There is a great deal of useful information on the US DOL website. And, of course, you can contact experienced labor and employment counsel.