A U.S. Department of Labor (DOL) rule change that would extend overtime protections to an estimated 4.2 million workers was temporarily halted by an injunction after 21 states sued in District Court. The DOL subsequently appealed the decision and is awaiting a decision in the Fifth Circuit Court of Appeals. Below is an overview of the previous rule, which the DOL is expected to revisit and significantly revise after abdicating its defense of the Obama-era rule in court. The DOL has, however, maintained that it has the authority to set such a rule governing salary thresholds under the law.
The amendment to minimum wage and overtime regulations under the Fair Labor Standards Act was set to go into effect Dec. 1, and would have lifted long-standing exemptions and raised the pay threshold from $23,660 annually to $47,476. Positions once considered executive, administrative or professional would be subject to overtime pay as well, and the pay threshold would be indexed to wage growth and updated once every three years.
“This [rule change] definitely will take merchants by surprise if they’re not careful and don’t pay attention,” Mark Schulze, co-founder of smart point-of-sale system Clover, told Business News Daily. “It’s a big change, so many people are affected by it.”
In short, employees who do not make at least the threshold salary and classify as exempt — now a narrower classification than before — are entitled to time-and-a-half pay after they’ve worked 40 hours in a week. The U.S. DOL maintains a list of valid exemptions for executive, administrative and professional positions for quick reference. [See Related Story: What You Need to Know About the New Federal Overtime Rules]
Much like with any other major change, business owners will need to ensure they’re prepared to handle the transition. Here’s everything you need to consider to make sure you’re in compliance with federal regulations by the deadline.
What is required of employers?
First and foremost, it’s important to track and record employees’ hours properly. Failing to do so could lead to errors and potentially even costly lawsuits. For small businesses using pen and paper or Microsoft Excel to track hours manually, the change means more time spent in administrative tasks and a higher likelihood of mistakes. It might be worth your while to consider investing in a time-and-attendance system that could automate much of the task of tracking hours.
“If you are tracking time on paper, switch to an automated system,” said John Waldmann, founder of employee scheduling company Homebase. “Tracking hours is complex, and the last thing you want is to be unprepared come Dec. 1 and have this catch up to you in 2017. This next month and a half is really the time to put the technological change in place.”
Business owners will also encounter new difficulties when managing their labor budgets. It’s necessary to revisit your operational practices as a whole, as well as the way you schedule and classify employees. Finding efficiencies wherever possible can help cut down on the total hours you spend on this task and reduce your likelihood of scheduling overtime for employees, Waldmann said.
“You can’t adjust how much overtime is being accrued and how much people are working without rethinking how you run your business,” Waldmann said.
What are the consequences for failing to plan accordingly?
Failure to comply with the new regulations can be disastrous for your bottom line, even to the point of ruining the business. At worst, an employee could file a wage-and-hour lawsuit against you, which will take considerable time and money just to settle.
“The exposure can be extremely large — magnified, of course, by how large your workforce happens to be,” said M. Reid Estes, labor and employment practice department manager at law firm Dickinson Wright. “You see multimillion-dollar verdicts and settlements almost weekly.”
Even if a lawsuit doesn’t arise, you could end up spending a lot of extra hours correcting errors, and lost time is irreplaceable. Moreover, in an attempt to keep employees exempt, many employers might mistakenly raise salaries, only to find out a worker’s job duties classify them as non-exempt; this essentially amounts to an added expense, Estes said.
“A lot of employers are taking the opportunity to do an audit,” he said. “Look at your workforce, and make sure they meet the duties test [for exempt status].”