Five Options for Dealing with New Federal Overtime Rules

CEDIA Webinar Outlines New Government Policy
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On Thursday, CEDIA hosted a webinar addressing the impending challenges that business owners will face due to the Department of Labor’s Fair Labor Standards Act Regulations surrounding “white-collar” overtime pay exemptions. Effective December 1, the salary level at which employees will be exempt from receiving compensation for overtime will raise from the current level of $23,000 per year to $47,476 (from $455 per week to $913). 

Tami Earnhart, partner in the labor and employment group at Ice Miller LLP, outlined the regulatory changes, how they will affect employers, and their main options in dealing with them. (Earnhart stressed that the presentation did not constitute legal advice, and pointed out that regulations can vary from state to state—so the following is a meant to be a loose guideline for how to begin planning for the changes.)

Beginning December 1, businesses will be required to track employees’ hours and to pay non-exempt workers overtime for every hour worked in excess of 40 per week. 

Here are five options that Earnhart put forward to manage this change.

1. Raise employees’ salary over the minimum.

This is the simplest way of avoiding the new regulation, but as Earnhart pointed out, it comes with many possible pitfalls. Beyond the payroll burden of increasing an employee’s salary to an amount greater than $47,476, there is the potential for a “domino effect” in regard to raises: such a change could bring their salary to a level approaching that of those above them—supervisors, for example—causing a morale issue that leads to more employees demanding raises as well.

2. Change to hourly compensation plus overtime.

Though also a straightforward means of adjusting to the regulation, Earnhart argued that by switching previously salaried employees to an hourly pay structure, you run the risk of making them feel as though they’ve been demoted, or that their status at the company is less “professional,” again leading to morale issues.

3. Limit overtime.

One of the more pragmatic approaches, supervisors can simply tell non-exempt employees that they can’t work more than 40 hours per week, or that they need permission to do so. While this doesn’t legally prevent them from exceeding the limit—and you have to pay them their due overtime if they do—it establishes a guideline that the employee can be expected to follow.

4. Split work between two positions.

Another pragmatic approach, this method aims to prevent the possibility of non-exempt employees—especially those who regularly work close to or over the 40-hour limit—from receiving overtime by either hiring a new, part-time employee, or by distributing some of their workload on an existing, exempt employee. In the latter case, this also requires a delicate touch to avoid overburdening employees and causing a morale issue.

5. Pay salary plus overtime.

If you decide to do nothing and simply abide by the new regulations, there are still some things you will need to begin doing, Earnhart pointed out. To begin administering overtime pay (in which you divide the employee’s weekly salary by 40 and pay 1.5 times the resulting rate) you need to begin managing the need for these previously exempt employees to track time, to address their conducting of “off-the-clock” work, and to begin modifying paystubs to reflect the actual number of hours worked by employees. 

Earnhart warned that employers are very likely to face contention from employees about the new policies and practices that they’ll be forced to abide by, but unfortunately, there isn’t much that can be done to avoid the implementation of this new DOL policy. In this case, “you always have the excuse of blaming the government for the changes you’re making,” she said. “It’s the easiest thing to do; they’ve given you an excuse.”