by Chris Cooley/MyHRConcierge
Special to The Shelby Report
On March 15, the Department of Labor (DOL) sent the controversial overtime rule that drastically increases the salary threshold to be considered exempt from overtime to the White House’s Office of Management and Budget (OMB). This is the final review stage in the process prior to the rule being published.
What is in the new rule?
While we currently do not know the final ruling, the ruling originally proposed by the DOL includes three major changes:
1. Increases the threshold to be considered exempt from overtime from $23,600 per year to $50,440 per year. With a few exceptions, this means employees making less than $50,440 will be eligible for overtime.
2. Increase the total annual compensation requirement to exempt highly compensated employees from $100,000 annually to $122,148 annually.
3. Establish a mechanism for automatically updating the salary and compensation levels going forward. This means the salary thresholds would be indexed to the Bureau of Labor Statistics and automatically updated annually without further rulemaking.
While the above are the proposed changes, we do not yet know the final ruling. There has been speculation the final ruling will reduce the $50,440 per year threshold. However, we will not know for sure until the final ruling is published.
What is next?
After receiving the DOL’s final ruling, the OMB has 90 days (with a potential of one 30 day extension) to review the ruling. However, according to the OMB, the average review time for agency rules is 53 days. If they keep to this schedule, there should be a final ruling in early to mid-May.
After the rule is reviewed, it will be submitted to both Houses of Congress and the General Accounting Office prior to taking effect. At this point, the public should be able to review the final ruling. It is anticipated the rule will then go into effect approximately 60 days later. Based upon this time frame, the ruling would go into effect in July.
What should I do now?
As stated above, the final ruling is not yet known. However, there are some steps that you can perform now to get prepared for the change:
1. Determine potential financial impact
Even though we don’t know the final ruling, prepare for the worst. Review your current roster of exempt employees that make less than $50,440 annually. For these employees:
a. Calculate the number of hours they typically work and the additional overtime that would be owed under the new ruling.
b. Review these employees to determine if it is better to provide a raise to increase their salary over $50,440, schedule to reduce their overtime hours or remain status quo.
c. Budget for any anticipated increase in wages that will be paid due to the ruling.
2. How will hourly pay rates for current exempt employees be calculated?
Many employees that will be changing from exempt to non-exempt are currently salaried. Therefore, begin determining how these employees’ hourly rates will be calculated. Will they be calculated by dividing their current salary by 2,080 hours? Will a factor for the anticipated overtime be utilized in the calculation?
3. Determine any operational changes needed
With more employees being eligible for overtime, review your operational needs to determine the best ways to reduce overtime. Examples of ways to do this are:
• Determine potential scheduling changes.
• Determine if more part-time, full-time or seasonal employees should be hired to reduce overtime.
4. Update job descriptions and handbooks
Job descriptions will typically note whether a position is exempt or non-exempt. Begin reviewing job descriptions to determine positions that might no longer be exempt and prepare to update once the new ruling is issued. Also, many handbooks define employees that are considered exempt and non-exempt. Review your policies to ensure they are consistent with the new ruling.
5. Begin working on a communications plan
The new overtime ruling will possibly affect key individuals in your company. Make sure you determine how you will communicate these changes to your employees. Will it be one-on-one meetings? Group meetings? Many of your employees are probably already worrying about how the changes will affect them. Will there be layoffs, demotions? Will it affect benefits, etc.? Make sure you have a plan to communicate these changes and how they will affect your workforce.
Don’t let the new ruling catch you unaware. While we don’t yet know the final ruling yet, you can still begin planning on how you will address the changes. It is important to be proactive and attack the ruling changes rather than addressing them reactively.
Chris Cooley is co-founder of MyHRConcierge, a company that provides outsourced HR management and administration services. MyHRConcierge serves companies of all sizes across the U.S. and specializes in helping organizations with two to 500 employees. Cooley can be reached at [email protected] or 855-538-6947, ext. 108.