The New Overtime Rule – What You Can Do to Comply

My last post was about the requirements of the new rule for the payment of exempt employees.  This post will focus on the options available to an employer to comply with those requirements and the information needed to decide which option works best for each affected employee.  Almost every payroll service company has materials on this topic.  One of the best I have seen can be found here and it includes an online calculator to aid the employer in determining the financial impact of the available options.  For those who want a more focused presentation on the effect of the new rule on insurance agencies, the IIABA will have a free webinar on that subject on June 22, 2016 beginning at 3 p.m. EDT.

The new overtime rule will affect only those employees who are being treated as exempt from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”).  If an employee is being paid a salary and is not paid anything extra if they work more than 40 hours in any one week, including time spent responding to e-mails or telephone calls or meeting with customers outside of normal working hours, they are effectively being treated as exempt employees.  If you have any such employees, beginning December 1, 2016, they must be paid a minimum salary of $913 a week, or $47,476 a year, and meet the other requirements of a recognized exemption to the overtime pay rules. (Click here for a good explanation of those other requirements.)

If an employee does not meet the requirements for an exemption from the overtime pay rules, they can still be paid on a salary basis, but they must be paid one and a half times their salaried hourly rate for any hour worked in excess of 40 in any one work week.  For such employees, an adjustment in their salary may be necessary to avoid an unsustainable increase in their total compensation once overtime pay is included. Similarly, if an employee does meet the requirements for an exemption from the overtime pay rules, but the employer cannot afford to increase their salary to meet the new minimum required, that employee will have to be paid at the overtime rate for any hours worked in excess of 40 in any one work week.  For such employees, the employer will have to decide if it can afford the increase in total compensation that will result.  If not, the employer can either change the employee to an hourly rate of pay or adjust the amount of salary paid, so that in either instance the employee will end up being paid the same amount of compensation as before after taking into account their expected overtime pay.

In both situations described above, the employer also has the option of forbidding the employee from working more than 40 hours in any one week.  In addition to being difficult to enforce, given the current emphasis on value added customer service, which usually includes responding to e-mails and telephone calls or meeting with customers outside of normal working hours, this option may not be a practical one for many agency owners.  In any event, those owners and other employers will have to begin tracking the hours worked of both types of employees, if they have not already been doing so.  Without such tracking, an employer is at the mercy of any employee who claims they worked more than 40 hours in any one week and demands to be paid overtime pay for those hours.  The burden is on the employer to prove such a claim to be untrue and without a good system for tracking the hours worked by its employees, an employer will be unable to meet that burden.

The bad news is that employers who have employees they have treated as exempt and not paid a salary of at least $47,476 a year have a lot of work to do to decide how best to respond to the new overtime rule’s requirements with respect to those employees. The good news is they until December 1, 2016 to do so.