In May 2016, the Department of Labor released its new overtime rule which will take effect December 1, 2016. The change was significant, with the increase in base pay to be considered eligible for the exemption at more than $12,000 or almost 33%, to$47,476. The level to be considered exempt under the highly compensated employee status went from $100,000 to $134,004 or more than 33%. The one bright ray for employers was that the implementation date was December 1, 2016 - six months from the rule date, as opposed to the 60 days feared. The changes are sweeping and include the first increase of the threshold for exempt employees in more than a decade.
Essentially, employees who had previously been classified as exempt due to their salary level and/or supervisory or managerial duties, will need to be re-examined to determine if they still meet Federal requirements.
What does this mean?
Regular employees earning under $47,476 are now eligible for overtime pay at time-and-a-half after 40 hours worked in a week. In order to maintain exemptions for employees, employers will need to increase salary levels to the threshold. If such an increase is unfeasible, then the employee will need to be reclassified as non-exempt and the employee will need to keep track or his or her time worked. Failure to comply will certainly result in litigation and adverse judgments.
What does this mean practically?
Issues that arise include employee morale, workplace rules and a ripple-up effect.
With respect to employee morale, employees who had previously been exempt may now be required to sign in and out, report hours and be held more accountable for their comings and goings. Where someone may have felt a certain level of prestige from being a manager, they may lose that feeling as their autonomy is curtailed.
Workplace rules may also be affected as employers will need to look at their remote work policies to insure that all hours are being captured for non-exempt employees. As remote work is expected to grow more and more, this is an issue that will need attention at the outset.
The ripple-up effect takes place when an employer elects to increase one employee’s pay in order to meet the new threshold requirement and now is confronted with what to do with the salary levels of those who did not need to be changed. For example, if a company raises Employee #1 from $40,000 to $48,000 per year to keep from having to pay overtime, what does it do for Employee #2 who was already earning $48,000? Anything? Nothing? And what happens when Employee #2 learns of the unexpected salary increase of Employee #1?
So what should an employer do?
A position-by-position analysis should take place in consultation with your attorney. The attorney can help explain the requirements for an exemption to be applied (upon meeting the salary threshold) under the various categories. In addition, the attorney can provide guidance as to how to mitigate possible employee dissatisfaction over new workplace rules which may need to be implemented.
An employer should also consider its IT system and what tools might need to be implemented in order to better track time to now meet the new overtime rules. If there is a portion of the workforce that routinely works on a remote basis, there are IT solutions that will help enable employers to meet audit requirements to prove accurate tracking of hours worked.
The bottom line
The new rules are expected to change the status of more than 250,000 New York employees. Employers can anticipate an expected increase in payroll costs - either from raising salary levels or the cost of implementing new tracking requirements.
Love Law Firm stands ready to assist employers in meeting these new requirements. For a free consultation, call 516-697-4828 or email [email protected]
The opinions expressed are those of the author. This article is for general information purposes and is not intended to be and should not be taken as legal advice. To learn more about Love Law Firm please call us at 516-697-4828.