Employers Who Treat the DOL’s New Overtime Rule Lightly, do so at Their Own Peril!

August 2016

James B. Sherman, Esq. 

By now most everyone is aware of the Department of Labor’s new overtime regulations.  Effective December 1, 2016 the minimum salary necessary for exempt status in the so-called “white collar” positions (executive, administrative and professional), increases drastically from $23,660 to $47,476, or $913 per week.  Any white collar employee currently exempt from overtime pay, must be paid 1 ½ times his or her “regular rate of pay” if their salary does not meet this new minimum as of the 1^st of December.  For employers, the impact of the DOL’s new rule and the many issues and decisions it presents – some with significant consequences to their bottom line – should not be ignored or underestimated.  Those that fail to address the many nuances and details of this fast approaching change to their wage and hour practices, may encounter serious problems, as well as lost opportunities, even before the end of the year.

There can be a tendency to over simplify the issues involved with a change that more than doubles the minimum salary level for the most common exemptions from overtime.  Despite predictions that the new regulations may impact over 6 million workers come December 1^st, many human resource professionals and consultants are treating this as a singular issue involving the simple decision of whether employees will remain exempt, or must be converted to nonexempt status.  While this certainly is the primary focus there is so much more employers should be taking into account if they care to minimize the impact of the new regulation, not only to profitability but to everything from employee morale to operational efficiencies and meeting the needs of their customers. 

Here is just a short list of issues many employers are overlooking as the new regulations are just around the corner:

·         What will be the cost of converting presently exempt employees, to nonexempt employees entitled to overtime?  How many employees must be converted?  What will be their “regular rate of pay” for purposes of overtime pay at 1 ½ this rate?

·         How many hours of overtime do these employees work?  Many employers assume their employees work little or no overtime, so converting some employees to nonexempt status will be inconsequential – don’t be so sure. Since few employers record hours worked each day by exempt employees, they may not truly know how many hours some employees work.  Also, white collar workers often perform job duties outside of normal business hours; e.g. training, mandatory business events and certain travel that must be treated as “hours worked” under the FLSA.

·         If employees receive an increase in salary to meet the new minimum, can the D.O.L. mandated raise be accompanied by increased expectations and/or job duties?  Yes.

·         Can employees in the same job category be split between exempt and nonexempt based on the new salary requirement, without generating discrimination lawsuits?

·         Is this a good time to address some current classifications of certain positions as exempt that are questionable because the job duties may not satisfy the requirements of any of the white collar exemptions?

The answer to the last of the above questions is “absolutely,” there is no better time to assess and reconsider improperly classified positions, or to redefine job duties to better meet the exemptions.  Failing to fully audit and assess all exempt/nonexempt positions, prior to the December 1, 2016 effective date of the new D.O.L. overtime rule, is a lost opportunity for employers to shore up their defenses at a time when class action wage and hour lawsuits are at an all-time high. 

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James B. Sherman is a named shareholder of Wessels Sherman law firm.  He and fellow shareholder from the firm’s Chicago office.  The two submitted comments on behalf of employers throughout the country, on the D.O.L.’s proposed rules issued last summer, and have since fielded countless questions and presented a number of webinars and live presentations to hundreds of business owners, HR professionals, accountants, consultants (and other lawyers) from numerous states from coast to coast.  For help with questions, auditing wage and hour exposure, risk avoidance, or strategies to minimize the impact of the new overtime regulations that take affect December 1, 2016, contact: James Sherman at jasherman@wesselssherman.com or 952-746-1700.

Compliance, Compliance, Compliance!

The New Overtime Rules Place Employers In Compliance Mode.

By James B. Sherman

Wessels Sherman has been deeply involved in all the issues brought about by the DOL’s final rule on overtime exemptions, really from the start. In fact, the comments that we assembled and submitted last fall on behalf of employers in opposition to troubling aspects of the proposed rule, were expressly recognized in the DOL’s preamble to its new rule out of more than 270,000 submissions it received from business groups, unions, individuals and certainly many other law firms.

The Department of Labor released major changes to the Fair Labor Standards Act (“FLSA”) overtime requirements, which has put businesses on notice that they need to assure their pay methods are in compliance by no later than December 1, 2016. So what does a business do when the U.S. Department of Labor abruptly more than doubles the minimum salary employees must be paid in order to qualify as exempt from the overtime requirements of the Fair Labor Standards Act?

The biggest change is obviously the salary increase for exempt workers. The new regulations increase the salary basis requirement to $47,476.00, which is $913 per week. Any individual falling under that salary requirement, will need to be paid overtime at a rate of time and a half for all hours over 40, unless another FLSA exemption applies. Based on the numerous objections that were sent to the DOL regarding the proposed rule, the DOL included a provision allowing employers to include nondiscretionary bonus and incentive pay toward a portion capped at 10% of the new salary threshold. This will slightly help businesses, but overall, the DOL seems to have added the section as an attempt to simply appease the overall opposition to these new rules. Although, the DOL added a “catch-up” pay, which allows a business to ensure that exempt employees who may fall below the new minimum salary in a given quarter, by paying a lump sum to make up the shortfall in salary. Businesses now have less than 6 months to determine how best to address all of the changes brought about by this new overtime exemption rule. For example, is it better to increase an employee’s salary to the new, greatly increased minimum salary to remain exempt, or does it make more sense to convert a particular employee to nonexempt status and pay overtime at 1 ½ times the employee’s regular rate of pay for any hours worked over 40.

So businesses now have only a few short months in which to:

1. assess the extent of the impact of the new overtime rule on their organizations, including how many employees may be impacted (i.e. currently exempt employees who will not meet the minimum annualized salary of $47,476 by the December 1, 2016 deadline);
2. determine whether any shortfalls in salary can be mitigated through existing or new nondiscretionary incentive or bonus pay, up to 10% of the required salary;
3. for currently exempt employees whose salaries fall short of the new minimum and do not meet the new minimum by including allowable non-salary earnings, deciding either to increase their salaries to the new minimum or to convert their status to nonexempt and pay overtime for hours worked over 40 in any given workweek.

If a business can afford to increase its costs, the simplest avenue is to increase the current exempt employees to the new minimum threshold. Perhaps, in order to maintain the employees’ morale, the business keeps the employee on a salary and simply tracks the employee’s hours and any hours worked over 40 are paid on a time and a half basis. Businesses must understand that the exempt employees must still meet the job duties test associated with the executive, administrative, or professional exemption to qualify for the exemption.

What if the business cannot increase its costs? How can a business remain in compliance with the new regulations? A business can start by implementing a policy that employees need permission to work over 40 hours in a week. This will allow a business to control its labor costs associated with time and a half. A business could also use the fluctuating work week pay method. If implemented correctly and by a qualified attorney, a business would be able to control labor costs by paying a fixed salary, but also, only be responsible for ½ time for hours worked over 40. But again, a business must implement the pay method correctly and review every issue necessary to be in compliance.

Businesses must become educated in this area and utilize the numerous exemptions or different pay methods that are allowed under the FLSA. The first step should be to become educated on the new regulations, the second step should be to perform a self-audit or an audit with a qualified attorney on the businesses pay practices, and the last step should be to properly implement the new pay methods. With the media coverage these new regulations have received, it’s a perfect time for a business to modify all of its pay methods without employee becoming suspicious and wondering why things are changing.

Questions? Contact Wessels Sherman.

Drastic Changes From DOL’s Final Rule on Overtime Pose BIG TROUBLE for Most Employers in 2016!

May 2016
James B. Sherman, Esq.

What do you get when the U.S. Department of Labor abruptly more than doubles the minimum salary employees must be paid in order to qualify as exempt from the overtime requirements of the Fair Labor Standards Act (FLSA)? For starters, you impact many millions of employees (an estimated 4-5 million). Employers are faced with the dilemma of choosing either to: (1) increase salaries of affected employees to the new minimum - increases of up to 100% in some cases - in order to keep them exempt from overtime; or (2) reclassify workers from exempt to non-exempt status, thus making them eligible for overtime pay. So what’s the big deal? The Obama administration claims the final rule, which takes effect on December 1, 2016, will result in big pay hikes for millions of employees whose salaries currently fall below the new $47,476 annualized minimum exempt salary level.  The administration’s theory is that employees will receive a DOL imposed salary hike, or lots of extra pay in the form of overtime pay at the FLSA required rate of 1½ times the regular rate for all hours worked over 40 hours in a workweek. To be sure, employers who fail to assess the impact of the sweeping changes under the DOL’s new rule, will likely see huge spikes in payroll costs before the year is out; that, or lawsuits from plaintiff wage and hour lawyers who are just licking their chops at the many prospects for claims against unsuspecting employers. The potential impact to the bottom line may be enough to put some employers out of business. Particularly hard hit are retail, hospitality, healthcare and non-profit organizations, although employers in manufacturing, transportation, food and many other industries will no doubt be affected as well.  Wessels Sherman aims to help employers deal with these changes.

Wessels Sherman shareholders James Sherman have been deeply involved in all the issues brought about by the new DOL rule, really from the start. Their webinar last summer on the proposed rule, drew a record-setting crowd.  The comments these attorneys assembled and submitted on behalf of employers in opposition to troubling aspects of the proposed rule, were expressly recognized out of the more than 270,000 comments the DOL received on its proposed rule. Now, their webinar on June 2^nd is among the first in the country giving employers an early opportunity not only to learn the pertinent details of the final overtime rule, but providing practical advice from experienced wage and hour litigators on:

·        Ways to assess the overall impact of these changes on your organization.

·    Determining what to do about the new rule (e.g. for starters, whether to meet the new minimum salary or reclassify certain employees from exempt to non-exempt).

·   Implementing sound policies and practices (handbook revisions, record-keeping, payroll practices, etc.) to address the sweeping changes many employers are sure to face…very soon.

Already, our phones are ringing and emails are buzzing with frantic HR and other business professionals seeking guidance on these changes from our experienced practitioners. Mr. Sherman, along with other lawyers in our firm’s 5 offices around the Midwest, are busy scheduling meetings and conference calls to assist employers with coping with the changes brought about by the final DOL overtime rule. To schedule your company’s initial assessment and develop a “plan of reaction” to the new rule before it takes effect in just 6 months, contact us at our Minnesota or Chicago offices, or any of our firm’s three other offices, below.

We also recommend attending our early webinar on the subject to hear from our highly qualified, experienced presenters. Another record crowd is already registering for this exciting, information packed webinar, scheduled for Thursday, June 2^nd, from 1:00 to 2:00 p.m.  See below to register now!