Human Resources News & Insights

Overtime crisis nearing: 6 steps to avoid pitfalls

It would be hard for any regulatory change to be as impactful as the passage of the Affordable Care Act. But the DOL’s impending changes to the overtime exemption rules may be exactly that. 

As if that wasn’t stressful enough, you’ll have far less time to prepare for the fallout of the overtime rule changes than Obamacare gave you.

The new rules won’t be phased in over the course of a decade like the ACA’s mandates. All signs point to the overtime rules taking effect before the end of 2016.

They’ll affect 2016 budget, staff plans

That means the time to start prepping is now, since the overtime rules will affect your budget and staffing plans for the 2016 calendar year.

And even without the final rules in hand yet (the comment period for the proposed rules just ended), there are steps employers would be wise to take now to brace for them — no matter what form the rules ultimately take:

1. Audit employees’ work hours

As you know, the DOL’s poised to raise the minimum salary threshold to be exempt from overtime to $50,440. So the first step is calculating how many hours your employees who earn less than that are actually working.

Reason: You don’t want to assume they work 40 hours per week only to be blindsided by the fact that they actually work 50 hours per week after the rule changes have reclassified those employees as non-exempt.

Next, you’ll want to weigh the cost of giving raises to those under, but near, the threshold — and who are most likely to work more than 40 hours per week — to avoid overtime obligations.

Note: The DOL may allow you to count nondiscretionary bonuses, and possibly commissions, toward 10% of workers’ salary levels. That may help to drag a few of your fence-sitters over the threshold without you having to give them a raise. But we won’t know until the final rules are issued.

2. Assess the effect on benefits offerings

One question you’ll want to ask yourself: Will being reclassified as non-exempt make some employees no long eligible for certain benefits that they once had?

If so, do you want to change your benefits plans to enable those workers to keep their benefits — or might you want to eliminate those benefits to make up for any costs resulting from having to now pay those workers overtime?

3. Expand time-tracking

No matter how you slice it, companies’ non-exempt employee populations are about to swell.

That will require expanding systems to track more workers’ hours to ensure proper overtime pay.

It couldn’t hurt to visit with your tech department now to start discussing ways to implement or expand time-tracking systems.

4. Revisiting remote work arrangements

It’s time to ask yourself what the rule changes could mean for remote work — checking work email, taking phone calls after hours, etc.

You can dissuade or even prohibit non-exempt employees from doing these things after hours all you want. But here’s the bottom line: Some are still going to do it — and when they do, you need a way to track that work time and compensate them for it.

Again, get together with your IT folks to determine the best ways to track employees’ after-hours/at-home work.

It’s worth noting that the DOL, in its Spring 2015 Regulatory Agenda, said it’s seeking information on “… [T]he use of technology, including portable electronic devices, by employees away from the workplace and outside of scheduled work hours …”

As a result, expect some rulemaking on this subject as well — like perhaps a definition of what qualifies as “de minimis” work.

Currently, the FLSA does say that “de minimis” work (typically five minutes or less) done beyond the 40-hour workweek by non-exempt employees is not compensable.

However, the common practice of workers reading and responding to emails off the clock on their smartphones has complicated the issue of “de minimis” work.

5. Create a communication plan

If you’re not going to raise some workers’ salaries — and they’re about to be reclassified as non-exempt — you need a plan in place for how you’ll break this likely upsetting news to them.

Some issues you’ll need to tackle:

  • Punching a clock. More workers are going to have to do it, and it may seem like a demotion. How will you explain why it’s now necessary?
  • Loss of flexibility. For your current salaried workers, being turned into hourly employees means taking time off to go to the doctor or attend a child’s event could result in less pay. Again, how will you break this news to them? And will you let them make up the time?

6. Prepare for changes to the duties test

It appears the DOL may eliminate the “concurrent duties” rule and require employees to spend more than 50% of their time exclusively on exempt duties for them to maintain an exempt classification.

Assume those changes will be adopted and you could avoid unpleasant surprises down the road.

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