Salary vs. OT: Understanding New DOL Guidelines

In the middle of the third quarter, many businesses are busy planning budgets for next year and looking for ways to make the end of the year as profitable as possible. This year, business owners will be dealing with another wrinkle in the form of the new overtime exemption rules from the Department of Labor (DOL).

Rewriting History

Established back in the 1930s, the Fair Labor Standards Act (FLSA) was an effort to boost employment during the Depression. The thought behind FLSA was rather than paying an employee overtime for work over the then-standard 44-hour workweek, a company could add an additional part-time position instead. By doing this, the company could avoid paying overtime and create a new position, growing the faltering economy.

This year, the rules will change again in an attempt to meet the needs of employees who earn too much to qualify for overtime pay. The new rules directly reference “executive” workers who earn $455 per week or $23,669 annually. In an effort to keep these employees from excessive overtime, which can diminish the overall pay per hour, employers have a choice to pay time and half for employees working more than 40 hours or raise the salary above the threshold of $47,476. This is a figure based on the 40th percentile of full-time, non-hourly paid employees in the lowest-wage census region (the South).

Time to Reassess

With a Dec. 1 deadline, employers have only a short time to re-assess their workforce needs. During this time, it will be critical for clients to determine how many hours exempt employees are really working each week as well as verifying proper classifications and updating job descriptions. Another question to consider is the compensation of travel time. Under the new guidelines, travel times must be compensated if the flight or drive occurs during normal work hours.

4.2 million Worker Impact

• 19% of all exempt employees
• 56% women
• 82% have attended college

Additional Considerations

Bonus, Incentives and Commissions

A portion of compensation at least quarterly paid as non-discretionary bonus, incentive pay or commissions can satisfy up to 10% of minimum salary requirement. For example, an employee can earn $42,728.40 salaried with a bonus earned of $4,747.60 to equal the $47,476. If the bonus doesn’t get the employee to the threshold, the additional amount must be paid.

Emotional

It’s safe to say the new overtime exemption rules will do more than change the way employees and employers look at overtime pay. The changes also have the potential to impact employees in the form of morale issues in the case of a “demotion” from salary to hourly status. One solution is to continue to pay on salary but also include overtime.

Data Collection and Timekeeping

With more scrutiny on hours worked, it will be important to implement new recordkeeping systems. This includes the need for employees to sign and certify hours each week and new rules regarding when overtime work is authorized. A plan for disciplinary action for unauthorized overtime work may also be necessary.

Moving Forward

Now is the time to solidify a plan because the salary threshold will increase automatically every three years, with the next increase scheduled for Jan 2020. The DOL must publish change 150 days before effective date. If you’re not sure what’s best for your business, check out this handy way to calculate the cost of paying overtime versus salary.

This article is brought to you by Staffing Kansas City, a full-service Kansas City employment agency that provides contract-to-hire, direct hire and temporary employment placement services.