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New overtime rules mean more money for workers, more challenges for employers

Tommy Siler

Tommy Siler

The U.S. Department of Labor’s new rule that doubled the over-time pay threshold puts more money into the pockets of 40,000 Mississippi workers but forces businesses to rethink their work arrangements with managers and supervisors.

Managers paid below the new threshold of $47,476 ($913 a week) must be paid overtime regardless of how many hours in a work week they devote to managerial, or white-collar, duties.

Businesses, non-profits and public-sector entities must decide by the law’s start on Dec. 1 how to compensate the managers and supervisors they depend on to work when needed in exchange for flexibility and other benefits.

Bill McPherson co-owner of 50 Double Quick convenience stores in the Mississippi and Arkansas, has been bracing for the overtime changes for nearly a year. The choice: Pay the higher salary or begin paying exempt managers by the hour and paying time-and-a-half for any work over 40 hours.
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“You have to put them on the clock,” McPherson said in an interview late last year, explaining the company’s profit margin is too small to bump store managers above the $47,476 a year.

The new threshold marks the first rewrite of wage and hour rules in the Fair Standards Labor Act in more than 35 years, replacing the current threshold of $23,660 ($455 a week). The new threshold matches the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region (currently the south).

The $47,476 is to be adjusted to inflation every three years. The Labor Department has promised to give employers a 150-day notice on changes to the threshold starting in 2020.

The Labor Department says 40,000 Mississippi workers are among the 12.5 million nationally who will become newly eligible for overtime pay.

The old rule let employers classify workers as exempt from overtime rules as long as the worker met the “duties test” by which he devoted at least 50 percent of his working hours to managerial functions. That is no more, said Tommy Siler, an employment lawyer and partner with Phelps Dunbar’s Jackson office.

“Under the new rule, you are not exempt if you do not meet the minimum salary level test, no matter what your duties are,” Siler said..

The private sector won’t be alone in facing the work-scheduling and pay challenges posed by the new overtime provisions of the Fair Labor Standards Act, of which the federal wage and hour law is a part.

“City and county governments will get hit with a lot of impact,” Siler said.

He noted the quandary faced by the county and municipal managers who oversee small town police and fire chiefs as well as public works directors and other key managers in a local government. If they aren’t making the $47,476, suddenly the hours they put in will be an issue.

Time cards may be seen as demeaning by such workers but the alternative would be to pay them over the annual threshold, a genuine fiscal burden for Mississippi’s small towns and rural counties, according to Siler.

“It’s going to require looking at things a lot of different ways,” he said.

Public and private sector managers and department heads who have traditionally been considered exempt from federal overtime rules now must be paid over the threshold or go on a time clock and be paid overtime, Siler added.

Ahead of the release of the overtime changes, the National Association of Counties warned the new rule which the DOL (Department of Labor) developed without consulting local government partners may have significant unintended consequences for them.

The rule will be especially concerning to county officials in low-wage states such as Mississippi, said the National Association of Counties, whose membership represents 3.3 million people.

“We’re concerned that this is a one-size fits all rule that given regional economic variation could play out to the detriment of county services and residents,” Association spokesman David Jackson said after last week’s overtime announcement.
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The Labor Department says the 50 percent rule for an overtime designation remains unchanged, though the new threshold shortens the pay ranges to which it applies. The rule specifies exempt status for workers paid above the threshold who spend at least half their time in managerial or supervisory roles. However, many in such jobs end a typical work week having done more line work than supervisory work.

Take retail, for instance, Siler said. “Retail is seven days a week, some are open 24 hours a day. The manager is responsible for everything that goes on regardless of the hour. It’s the same with restaurants. More managers are going to have to be managed more carefully.”

The overtime rule, Siler said, will force employers to make value decisions. “Does it make more sense to pay overtime or hire more people?” he said.

The National Federation of Independent Businesses (NFIB) advises members is to consider hiring more hourly full-time, part-time and seasonal workers or do some job restructuring to offset the expansion of overtime pay.

The Obama administration views the expanded overtime as a major financial lift for America’s middle class workers. But the NFIB, said it questions how broadly rank-and-file workers will look favorably on it. “Worker morale will likely decline as a result of this rule,” the NFIB said.

“The NFIB anticipates the change will especially hit low-to-mid level managers,” the organization said in a report to members. “These managers may currently make less than the $47,476 proposed threshold, but enjoy perks such as flexibility of hours and benefits like health insurance.”

One way businesses can still save on wages, Phelps Dunbar’s Siler said, is to use a fluctuating work week and payment schedule. This, he said, works best with workers who work, say, 30 hours one week and 50 hours the next. “You can have an agreement with the employee that you are going to pay them a set” figure.

“You still must pay overtime for hours over 40 in the fluctuating schedule. But you only have to pay half time,” he said, contrasting that amount with the standard time and a half that otherwise must be paid.

The key to qualifying this arrangement, Siler said, is the work week “really fluctuates.”
Each week must be looked at as a standalone, he advised, and said this means employers can’t offset hours from one week to the next.

Of course, if a manager is making just below the $47,476 mark, it may make more sense to give a raise above the threshold, Siler said.

“I think a lot of companies are going to have to look at this.”

Meanwhile, the total annual compensation threshold for the “highly compensated employee” overtime exemption will increase from $100,000 to $134,000, a figure the Department of Labor says represents the 90th percentile of earnings of full-time salaried workers nationally.

These workers are professionals with no management responsibilities but are not on the clock.

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