Regulatory Compliance

Adjusting to the DOL’s Overtime Rules

The proposed rules will result in more compliance issues and new legal standards for courts to interpret.
By: | July 21, 2015

At last, the Department of Labor released its proposed overtime rules, which extend 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.

Gregory J. Kamer, founding partner at Kamer Zucker Abbott, a management labor employment law firm in Las Vegas, said the new regulations, if adopted, will require employers to decide whether they want to pay overtime or employ more workers.

“Clearly, the wage will go up or there will be more employment or [job] openings. That can be a hard call.”

“The changes that have been hinted at [regarding] duties could actually have a more significant business impact than even the salary increase.” — Lee Schreter, chairman of the board, Littler Mendelson

Lee Schreter, chairman of the board at Littler Mendelson in Atlanta, said companies will also need to spend time and money analyzing the regulations and informing employees of the changes.

“It’s a mistake to focus solely on the salary level,” she said. The changes to the 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.”

The changes may also limit opportunities for advancement, said Kerry Chou, senior practice leader at WorldatWork, an HR association based in Scottsdale, Ariz.

He noted that first-line supervisors who perform nonexempt duties but also manage employees by assisting in their hiring, promotions and discipline may lose the opportunity to develop skills and demonstrate their supervisory aptitude because of the proposed rules.

Other employers may mitigate the expense by preventing employees from working more than 40 hours each week or laying them off, he said.

The industries most affected by the new salary include retail and fast-food restaurants, he said, 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 said employers will need to 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 said, “they may negatively impact the employees [that the DOL rules] are trying to help.”

Schreter noted the DOL has asked employers for input on appropriate white-collar exemptions, 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 said 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.

Carol Patton is a long-time, versatile journalist. She can be reached at [email protected]

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