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New overtime regulations mean stark changes in workplace

Susan Denham with the Department of Labor explains the intricacies of overtime regulations to a crowd of business leaders at a recent Mississippi Gulf Coast Chamber of Commerce event.
Susan Denham with the Department of Labor explains the intricacies of overtime regulations to a crowd of business leaders at a recent Mississippi Gulf Coast Chamber of Commerce event.

A new federal overtime regulation will result in large-scale changes for employers and workers in December.

New regulations championed by President Barack Obama and put forth by the Department of Labor will raise the threshold for salaried white-collar workers, who now will be entitled to overtime pay or a significantly higher salaried pay. Notably, the minimum threshold for qualified workers will increase nearly 100 percent, from $455 a week ($23,660 a year) to $913 a week ($47,476 a year).

Coast employers have sought clarification from labor attorneys and their local chamber of commerce on what the regulations will mean for their businesses. Employees, too, are looking ahead to see if they stand to benefit from the new rules.

“Ignorance is never be an excuse for (disobeying) the law,” Kimberly Nastasi, Mississippi Gulf Coast Chamber of Commerce CEO, told business owners at a recent chamber event. “This new regulation changes how we hire; it’ll change the way we do business. We have to be compliant. But not knowing about it isn’t an excuse.”

The Fair Labor Standards Act already stipulates hourly employees be paid for all hours and overtime pay at their regular rate of pay plus one-half the regular rate of pay for all hours in excess of 40 hours worked per work week. For salaried workers, who are currently exempt from the overtime requirements, the new federal threshold sets a national standard that guarantees a base level of salary regardless of whether states pass or repeal overtime legislation of their own. What’s new is who now will be considered eligible, or non-exempt, for overtime pay. Any qualified salaried worker who earns less than $47,476 a year will be entitled to overtime pay.

The Department of Labor and Economic Policy Institute disagree on how many workers who will be affected by the new regulation, but agree it’s in the millions. The DOL predicts the regulations will affect up to 4.5 million U.S. workers. Close to 2 million workers who do not have college degrees could now be considered eligible.

The Economic Policy Institute suggests there are 12.5 million salaried workers making between $455 and $913 per week. The EPI takes into account employees they consider to have been misclassified. Workers who met the salary threshold established in 2004, or are payed above it, could have been excluded from overtime pay if their jobs were determined to fall within an executive, administrative or professional classification.

Steven Cupp, labor and employment attorney at Fisher Phillips in Gulfport, said the exemptions will largely include workers considered to be part of “middle management.”

“Let’s say you work as an assistant manager at a nearby restaurant. You make $30,000 a year in salary. Before the new regulation, it’s possible you worked 50, 60 hours a week. Now with the new rule, employers will have to determine a couple things,” he said. “First of all, they’ll have to consider raising your salary to the new federal threshold of $47, 476 a year.

“Looking along the Coast, we’re looking at middle management in the hotel, restaurant, retail and tourism industries. These areas will be most affected by the new regulation. These are workers that have a say in business decisions. Part of their job involves overseeing other employees, or functioning in a capacity the business depends on.”

Employer options

Despite the changes, employers have several options, Cupp said. He’s consulted with several Coast business owners already.

“I tell them the sky isn’t falling, first of all,” he said.

“Employers have several ways to deal with these new regulations. But the main thing I tell them is: Get ready. You don’t want to be scrambling at the last second. Make the change now and you’ll have four or five months to see how it’ll work.

“The new regulations are coming and you don’t want to be caught at the last second trying to catch up.”

Employer options include raising qualified employees’ salary to $913 a week. Or they can transfer salaried employees to an hourly rate and pay the employee time-and-a-half for any hours over the 40-hour work week. Or they can keep an employee on salary but monitor their hours to make sure they don’t work overtime.

And that’s not all, Cupp said.

“Employers can reduce the work week and make sure employees don’t work over 40 hours. They’ll have the option to renegotiate salaries, maybe bring them down a little bit. One other option to get around paying time-and-a-half is for employers to hire additional part-time employees to make up for expected overtime hours,” he said.

Employees should tread cautiously, Susan Denham with the Department of Labor said.

“The new regulation will affect a great number of employees and employers who will have to make some tough decisions on how to deal with this,” she said.

“One misconception is that a lot of people think is they’ll be getting a huge raise Dec. 1. Well, not necessarily.”

Requirements for exemption

Job titles alone do not determine exempt status. For an exemption to apply, an employee’s specific job duties and salary must meet all the requirements of the Labor Department’s regulations. There are some gray areas when classifying employees, but the following definitions provide some guidance.

Requirements for an executive exemption:

▪  The employee’s primary duty is managing the enterprise, or managing a department or subdivision of the enterprise.

▪  The employee must “customarily and regularly” direct the work of at least two or more other full-time employees or their equivalent. (The employee can oversee two full-time employees or four part-time employees whose work comprises two full-time workers.)

▪  The employee must have the authority to hire or fire other workers, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees must be given weight.

Requirements for an administrative exemption:

▪  The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers.

▪  The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

Employees fall within the professional exemption category if:

▪  The employee’s primary duty is the performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and includes work requiring the consistent exercise of discretion and judgment.

▪ The advanced knowledge must be in a field of science or learning.

▪  The knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.

This group will include employees who have college degrees, and whose job description entails the use of the instruction learned in that degree.

Cupp used lawyers or accountants as examples of the professional exemption.

There’s a subcategory of the professional exemption called the “creative professional” exemption.

In this case, the employee’s primary duty must be the performance of work requiring invention, imagination, originality of talent in a recognized field of artistic or creative endeavor. It will also include some musicians and artists who have extensive training and background in their respective art.

More-stringent accounting

With the uncertainty for both employees and employers on what will actually come of the new regulations, Cupp said at least a couple things are clear.

“One benefit is it’s drawing attention to the issue of salaries, overtime pay and what the duties’ requirements are. It’s making employers look at it. Maybe out of fear, maybe out of concern. It’s something employers need to know.”

According to the Labor Department’s Wage and Hour Division, the top and most costly mistake for employers is wrongly labeling employees as exempt from overtime pay.

Employees misclassified as exempt can be eligible for back wages and an equal amount in liquidated damages. Another benefit of the new regulation is record keeping for employers and employees.

“Employers will keep more diligent time records of their employees. They’ll want to know exactly how many hours an employee works and what they do while on the clock. This will better determine employee performance and refocus employers on how beneficial an employee is,” Cupp said.

He also noted the DOL established a mechanism for automatically updating the salary and compensation levels every three years.

It’s not a good bet to assume the regulations will be overturned any time soon, Cupp said.

“I’ve looked at some of the bills out there that seek to prevent this from going into effect. Most of them focus on funding the DOL to enforce it. But it’s also true that the regulations start before the new president takes office. My advice to employers is figure this out now. That way, you’ll have a better idea of how it’ll work in December.”

Who stands to benefit?

The Economic Policy Institute predicts the overtime regulations will directly benefit a broad range of working people, including:

▪ 6.4 million women, or 50.9 percent of all benefiting workers

▪ 4.2 million parents and 7.3 million children (under age 18)

▪ 1.5 million black workers and 2 million Hispanic workers

▪ 3.6 million workers aged 25 to 34

▪ 4.5 million millennials

▪ 3.2 million workers with a high school degree but without a college degree