10 Steps Employers Should Take Now to Prepare for New Overtime Rule

Tick tock, tick tock: Time is running out!  In May, the United States Department of Labor (the “DOL”) issued a Final Rule, modernizing the Fair Labor Standards Act (“FLSA”), doubling the threshold at which employees are “exempt” from overtime pay, making nearly five million currently “exempt” employees “non-exempt” and eligible for overtime.  Effective December 1, 2016, employers must act now to develop a comprehensive strategic plan to effectively manage the significant structural and budgetary impacts of these rapidly approaching changes.

Amongst other things, the new rule:

  • Doubles the threshold for the so-called white-collar exemption, at which executive, professional and administrative employees are “exempt” from overtime, from $455/week or $23,660/annually to $913/week or $47,476/annually;
  • Permits employers to satisfy up to 10% of the white-collar exemption with nondiscretionary bonuses and incentive payments (e.g. commissions) in some situations; and
  • Raises the threshold at which highly compensated employees are “exempt” from overtime pay from $100,000 to $134,004, subject to a minimal duties test.

In order to be prepared, here are 10 steps employers should take now:

  1. Make a list of all employees, noting their classifications as either “exempt” or “non-exempt.” Take this opportunity to make sure that each employee is classified properly.
  2. Identify employees who will need to be reclassified from “exempt” to “non-exempt”, i.e. current employees who are currently “exempt” but who may now be “non-exempt” if they are paid less than $913/week or $47,476/annually.
  3. Track the number of hours these employees work. Typically, “exempt” employees are not required to track their hours and, so, this will need to be done.
  4. Calculate the financial feasibility and costs of raising these employees’ pay to the new threshold level to make them “exempt” vs. reclassifying them as “non-exempt” and paying overtime.
  5. Track how much time managerial employees are spending on “exempt” tasks. Review managerial job descriptions and “exempt” tasks to determine if certain “exempt” tasks should be retained or may be reassigned.
  1. Verify that your time-keeping methods are sufficient for any employees who will be required to use it.
  2. Carefully analyze the company impact of employee pay changes, or respective changes in job assignments and/or tasks.  Will the organization need to make structural and or policy changes to accommodate, for example, “exempt” and “non-exempt” employees who will have the same job title?  Will compensation and benefits need to be changed?
  3. Develop a comprehensive administrative plan to ensure compliance. Analyze whether any company policies will be impacted and need to be changed; train all management for the changes.
  4. Mitigate the impact of company changes on employee morale.  Reclassifying managers and/or employees, especially if it results in changes to compensation and/or benefits, and requiring them to track time will likely be met with resistance.  Be prepared with a unified message on how and why changes are going to be implemented, keep all stakeholders informed as changes are implemented, and follow-up afterwards.
  5. Lastly, seek counsel. The DOL rules are complex, and employers who do not adhere to them strictly, may be liable for serious financial penalties.