Develop a plan now to address Department of Labor's proposed overtime rule
On March 7, then Secretary of Labor Alex Acosta proposed a rule to increase the salary threshold for the overtime exemption of executive, administrative and professional employees under the Fair Labor Standards Act. The rule increases the salary threshold from $23,660 per year (or $455 per week) to $35,308 per year (or $679 per week). This new proposed salary threshold is far less than the $47,476 per year threshold in the rule proposed by the Obama administration that was permanently enjoined nationwide by a federal court in Texas.
Significantly, the proposed rule does not call for automatic annual adjustments to the salary threshold; does not create different salary levels based on region of the country; and does not make any changes to the duties tests.
In addition to increasing the salary threshold, the new proposed rule would permit employers to count nondiscretionary bonuses and incentive payments (including commissions) paid to employees to satisfy up to 10 percent of the salary threshold. The proposed new rule also modifies the "highly compensated employee" exemption, increasing the annual compensation threshold for that exemption from $100,000 to $147,414.
The rule has not yet been finalized. The March 7 proposed rule was open for comments for a 60-day period. The Department of Labor received more than 116,000 public comments. The Department of Labor sent its final draft of the rule to the White House and the Office of Management and Budget on Aug. 12. The text of the final rule has not been made public.
When the final rule is published with an effective date, many expect unions and worker advocates to mount legal challenges to the rule. Even though the final rule may be challenged, it would be wise to be developing a plan now to address this huge budgetary issue. This column will focus on the standard salary threshold, which will have the most dramatic impact on your company. I recommend the following action plan to address the standard salary threshold increase:
1. Identify all employees currently classified as salaried exempt, but paid less than $35,308 per year (or $679 per week). Every employer will need to make a decision regarding whether to reclassify these individuals as non-exempt under the new rule or increase their salaries to $35,308. If you have employees whose duties have changed or who have possibly been misclassified as exempt, now is a good time to reclassify them. You can blame the reclassification on the rule change.
2. Develop a new compensation plan. If your company chooses to reclassify the employees as non-exempt, consider tracking their hours to determine just how many hours per week they currently work. Will post-conversation pay and working hours replicate an employee's current situation, or will you need to restrict schedules at or near 40 hours? Will you need to reassign certain tasks to other employees?
Consider a cost-neutral solution, under which you set the employee's hourly rate at a level that assumes a certain amount of overtime, resulting in the same annual compensation currently earned by that employee.
3. Train the reclassified employees. These employees will have to be trained on timekeeping procedures at your company. They have not been accustomed to tracking their time. Now, it will be crucial legally that they do so. Be sure to explain to these newly reclassified employees on your policies concerning unauthorized overtime work, meal and rest breaks, and the use of mobile devices after working hours.
4. Carefully consider the consequences of your actions. If you convert a current salaried manager to an hourly employee, what is the psychological impact? Will he/she identify more with non-supervisory employees and quit thinking like a manager?
Another possible consequence is a change in benefits by moving from exempt to non-exempt.
Do not forget about the discrimination laws. For example, a plan that increased the current male managers' salaries but converted female managers to hourly would draw fire as discriminatory.
If you take a supervisor who is now salaried exempt and reclassify him or her as a non-exempt hourly employee, it will also adversely impact you at the National Labor Relations Board. When litigating whether one is or is not a supervisor for purposes of the labor law, if the person is hourly and eligible for overtime, that is a factor indicating employee/non-supervisory status.
5. Develop a communication strategy now. Chances are good that many of your current salaried employees have anxiety about whether they are going to get a pay increase or get reclassified as hourly employees. A good communication plan identifies who will deliver the news to the employees, and when the news will be delivered. Also give consideration to the format for delivering your plan. Will you use e-mail, one-on-one meetings, video presentations? To ensure a consistent message, develop talking points and FAQs for your management team.
On August 14, I phoned Paul J. Boyle, senior vice president/public policy for the News Media Alliance in Washington, D.C. Paul indicated that there has been very little business opposition to the proposed rule.
I hope this summary is helpful. Bottom line, I would begin the process of reviewing the individuals currently classified as salaried exempt and determine what action your company is going to take if the individual's salary currently is not at least $35,308 per year.
L. Michael Zinser is the founding partner of The Zinser Law Firm in Nashville, Tenn. The firm, which has a heavy concentration of clients in communications media, represents management in the area of labor and employment. Zinser can be reached at (615) 244-9700 or firstname.lastname@example.org.