The Proposed Overtime Law: What HR Managers Need to Know Right Now

By: Shannon Maggs, Manager of HR & Administration

Proposed changes to the overtime law are expected to affect nearly 5 million white-collar workers. Though the law is still only in the early stages of the approval process, experts continue to weigh in on next steps for employers if (or when) it passes. And while there’s a ton of information already out there speculating what might happen, I’m sure some of you are saying, “That’s great, but what do HR managers need to know right now?!”

Because these huge changes are still pending (and because I’m a planner), I maintain it’s always better to be safe than sorry. To help all my fellow HR managers prepare, I’m weighing in on the topic with a few suggestions. Below I’ll answer some of the big questions and provide you with a few helpful tips you can follow to get a better sense of what you should (or shouldn’t) be doing to prepare.

What’s prompting the proposed changes to the overtime law and what details do we know now?

The best place to find the “why” behind these changes is from the United States Department of Labor (DOL) who says that the “failure to update the overtime regulations has left an exception to overtime eligibility originally meant for highly-compensated executive, administrative and professional employees now applying to workers earning as little as $23,660 a year.” The proposed law is designed to identify exempt workers making less than the poverty level and to force employers to either increase their base pay or to reclassify them as non-exempt and therefore begin paying them for any additional hours worked beyond the standard 40 in the workweek.

What does the new overtime law mean for HR managers?

Technically nothing yet, but it may mean you’ll have to take a closer look at not only how much you pay your exempt employees, but the duties your employees perform. Although there haven’t been any specific changes proposed regarding testing the duties performed by exempt employees, it is being considered. Since the duties test hasn’t been updated since 2004, we should expect changes to come. However, regardless of the proposed or potential changes, HR managers should consider performing frequent audits on employee classifications and duties to make sure they are in alignment with all laws, especially since the workforce is constantly evolving and job duties and responsibilities change often.

How will it affect my employees’ wages?

It’s important to remember that hourly employees won’t be affected because of the current Fair Labor Standards Act (FLSA) rules requiring them to be paid for hours worked beyond the normal 40. What it may mean though is that salaried employees who have been classified as exempt will either need a raise in salary to hit the new salary threshold or be paid for overtime work performed.

If current exempt employees don’t meet the new threshold, would it be better to raise their salary level to meet it or should I pay them hourly with the possibility of overtime pay?

Well, it really depends on how you choose to address the changes in the event that the law is passed. If it is passed, the employer has a few options to consider:

  1. After calculating employees’ current hours, pay rate and possible overtime pay, employers may realize that it’s in their best interest to pay employees a higher annual salary, making them exempt rather than allowing them to qualify for overtime pay. However, this determination should be done in conjunction with a review of the employee’s job duties in order to verify that they truly meet the FLSA guidelines of an exempt employee.
  2. Employers could also choose to only pay workers the overtime they deserve and keep them at their current pay rate.
  3. Or, employers could decide that it would better to hire another worker, better manage employee hours and limit employees working overtime. However, choosing this method should not preclude a reclassification of the affected employee, since this still leaves the door open to audits and misclassification penalties if the employee remains classified as exempt, especially if there is no record of actual hours worked. It’s better to be safe than sorry when it comes to FLSA.

What are some steps HR Managers can take now to get prepared?

  1. Regardless of the proposed changes to the overtime rule, employers should make sure they’re accurately tracking employees’ time. There are many time-tracking tools available, and it’s not as costly or cumbersome as you would think.
  2. Now is the time to also take a closer look at the classification of your employees. Do an audit of your employees’ current duties and figure out if there are any fine lines they may be crossing based on the current duties test. Then take a closer look and consider whether your answer(s) might be considered a “stretch” if the reins around the duties test were to be tightened. For example: Is “pitching in” and helping others with non-exempt work actually considered non-exempt work or is it simply leading by example? And just how much of your exempt employees’ time is spent in that capacity? Setting specific guidelines can help you understand if an employee needs to be reclassified and what that may mean for salary/hourly costs. (See pages 91-97 of the proposal for more information.) If you determine that you have misclassified an employee or group of employees, you should take action to correct the situation going forward. Be sure to speak to a labor attorney if you are unsure of how to proceed.
  3. Additionally, while the DOL won’t be providing what the new duties test will or won’t include in terms of (non)exempt work tasks, they are accepting input from outside sources. By doing your own test you may be able to provide the DOL with important insight to what the future of the duties test should include.

What should employers not do?

With the exception of tracking employees’ time (which is a standard that most employers should already be following), don’t set anything in stone. Just because there is a proposal doesn’t mean the proposed changes will pass. Your best bet now is to simply understand your exposure, and be prepared for what may come so that you are able to react quickly and decisively if or when you need to.

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