By BECKY GILLETTE
Starting Dec. 1, an estimated 4.2 million salaried workers in the U.S., including 40,000 in Mississippi, will no longer be exempt from U.S. Department of Labor overtime regulations.
“That is a large number of folks to educate in a short period of time,” said Jennifer G. Hall, a shareholder with Baker Donelson in Jackson who practices law in the area of labor and employment. “I believe most people have heard that there is some type of change in the overtime rules, starting December 1. However, they really do not know the details of the change.”
Employees who were previously classified as exempt from overtime may no longer meet the exempt status because of the new salary threshold, which is increasing from $455 per week ($23,660 per year) to $913 per week ($47,476 per year). Hall said these newly non-exempt employees will have to maintain time records, and should be trained on proper timekeeping techniques.
“The Fair Labor Standards Act places a high burden on employers to maintain accurate records of all time worked by their non-exempt employees,” Hall said. “This ensures that non-exempt employees are being paid minimum wage for all hours of work (currently, $7.25 per hour) and overtime of 1.5 times the regular hourly rate for all work in excess of 40 hours per workweek. Timesheets with general entries, such as repeating eight hours for each workday, are not accurate records. The Department of Labor wants to see timesheets with actual start and stop worktimes and actual unpaid meal periods, i.e. 7:57 to 12:01 and 12:55 to 4:59.”
Additionally, the newly non-exempt employee will have to record work away from the workplace. For example, managers often work on weekends or respond to emails and texts after hours. Because of the increase in the new salary threshold, many will no longer be exempt, and they must now record their time.
To assure compliance, Hall recommends businesses: 1) audit. 2) adjust policies and job descriptions. 3) communicate with employees. 4) train. 5) monitor.
“Now is the time to conduct wage and hour audits of the workplace,” she said. “Businesses must identify the employees involved — all salaried, exempt employees currently making $47,476 or less per year — and decide how to proceed. Businesses will need to ‘run the numbers’ to decide if it makes more sense to increase the salary to the new threshold to maintain exempt status versus changing the employee to non-exempt. This requires a good understanding of actual hours worked, including time worked after hours answering emails/texts, working from home, etc.”
Hall said for the newly non-exempt employees, businesses must decide whether to change from salary to hourly for ease in determining regular and overtime rates. Non-exempt employees can be paid on a salary basis. However, they are entitled to overtime for work in excess of 40 hours per workweek, and there are special rules for those calculations.
“If it is highly likely that the newly non-exempt employee will not have overtime, it may make more sense to keep them on a salary basis,” she said.
Another recommendation is for businesses to be mindful of job positions that will now have both exempt and non-exempt workers in the same classification. For example, ABC Company has two managers and, based solely upon tenure, one manager makes $48,000 and the other makes $45,000. The manager making $48,000 will remain exempt; the other will now be non-exempt and likely converted to hourly.
“How will the newly non-exempt manager perceive this change?” Hall asks. “What if the $48,000 manager is white and the $45,000 manager is black? Male/female? These are complicated issues, and I strongly encourage businesses to consult with attorneys to work through them.”
Now is a good time to review handbooks, and update policies regarding wage and hour issues. Hall said handbooks should stress the importance of accurate timekeeping records, prohibit working “off the clock,” and require preapproval of overtime. Of course, if an employee works unapproved overtime, he/she would have to be paid for that time, but then disciplined for violating company policy.
“Additionally, businesses may want to have a policy to limit remote access to company email and networks,” she said. “For example, businesses may want to implement a policy to prevent non-exempt employees from having company email on personal devices, or the businesses may want to implement an email curfew to prevent after-hours work by non-exempt employees. Further, many companies have written job descriptions that will need to be updated to reflect the newly non-exempt status of the positon (or the increase in salary level to remain an exempt position).”
Hall said changing an employee from a salaried, exempt position to an hourly, non-exempt employee has effects on morale. Good communication with the employee can help ease the transition.
Newly non-exempt employees must be trained on accurately recording their time and not working “off the clock.” Additionally, Hall said exempt employees need to be trained to not engage a non-exempt employee in work after hours or before the employee clocks-in.
Monitoring of timekeeping records is imperative, especially for newly, non-exempt employees who have not had to previously keep their time. Hall recommends reviews and spot checks of all timekeeping records.
There are several options businesses can consider to avoid overtime obligations. Hall said acceptable alternatives include raising the salary to the new level ($913 per week); limiting hours worked (38 hours per week); job sharing (hire two part-time employees to divide the work of the one formerly exempt position); shifting workloads; or decreasing pay to offset the overtime requirement.
While the new rules could be burdensome for some businesses, Hall also sees potential advantages.
“First, it provides a good reason to right the ship,” she said. “To classify as exempt under the ‘white collar’ exemptions, the employee generally has to meet three tests: 1). Paid on a salary basis. 2) Salary threshold of $913 per week as of December 1. 3) Primarily perform exempt job duties (executive, administrative, professional, outside sales, and highly skilled computer). In conducting audits regarding the salary threshold, now is also a good time to review job duties to confirm that employees are properly classified. If the employees are not performing exempt job duties, now is a good time to reclassify them as non-exempt and hopefully avoid wage and hour claims based upon misclassification.
“Second, under the new regulations, businesses may use up to 10 percent in nondiscretionary bonuses and incentive payments, including commissions, to satisfy the salary threshold,” she said. “That means businesses must pay employees at least 90 percent of the salary threshold ($821.70/week which is 90 percent of $913). The remaining $91.30/week can be paid in commissions, non-discretionary bonuses, or incentives. The incentive pay must be paid at least quarterly. If at the end of the quarter, a particular employee did not earn $91.30/week in bonus/commission, the business has one additional pay period to pay a lump sum to raise the employee’s earnings for the quarter to the salary threshold. This provides a great opportunity for businesses to develop bonus structures to incentivize employees (and hopefully increase both employee productivity and the bottom line).”
Blake Wilson, president and CEO of the Mississippi Economic Council, said the new labor rules are likely to be unpopular with many millennials.
“What is really unfortunate about this is so many younger employees often fall into this pay range,” Wilson said. “Millennials favor their time off and like flexibility. This is going to change that paradigm because it is really going to introduce a time clock environment for employees who didn’t previously have it. Some may want to stay and work—they are still learning their jobs—and we will have to shoo them out the door. Employees will have to say: ‘You can’t stay longer. You can’t come in late because we have to adhere to this rule.’ I think it is going to change the environment in many workplaces, and that will be seen as a negative by millennials. But it is the rule, so employees are going to have to live with it.”
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