The U.S. Department of Labor’s final rule that broadens the pool of salaried employees eligible for overtime will go into effect at the beginning of December, and planning ahead could make the transition smoother for local businesses.
More than 31,000 salaried employees in Nevada and 4.2 million in the U.S. will become eligible for overtime through the new regulation’s expansion of the salary threshold for nonexempt executives, professionals and administrative workers — increasing from $23,660 to $47,476 in annual gross income.
That means salaried nonexempt employees making between $455 and $913 per week would be eligible for overtime, whereas previously the salary threshold was $455 and below.
One of the first steps to preparation for businesses is to identify what nonexempt employees will become eligible for time-and-a-half overtime pay for all hours worked past 40 hours in a workweek.
“You should review your payroll,” Jaqueline Velasquez, a senior tax accountant at Stewart Archibald & Barney LLP in Las Vegas. “All employers should be going through their payroll … just to make sure they confirm the exempt status.”
The exempt status can be determined by a three-part test: make sure the employee is salaried; the employee falls into the new salary thresholds; and the employee isn’t exempt under the duties test that was left unchanged in the updated rules.
Once it’s been determined an employee falls under the new criteria, employers can act.
Velasquez said these eligible employees could have their pay moved up beyond the $47,476 threshold to eliminate any worries. If employees are kept within the salary thresholds to where they would be eligible for overtime, employers can satisfy up to 10 percent of the standard salary level through bonuses and incentive payments, including commissions, as long as these payments are made quarterly or more frequently.
F. Thomas Edwards, a shareholder at Holly Driggs Walch Fine Wray Puzey Thompson in Las Vegas, said employers also could hire new employees and redistribute the work, thus alleviating the potential for paying overtime.
The Department of Labor estimates an added cost of $1.5 billion for employers annually, Edwards said. Broken down, this estimate equates to $1.2 billion in extra wages and just under $300 million in costs related to compliance with the regulations.
The estimated costs for employers are one of the main points of contention in a lawsuit filed to stop the law from being implemented in December. Nevada Attorney General Adam Laxalt filed the lawsuit, along with his counterparts in 20 other states, in U.S. District Court in Eastern Texas against the Department of Labor in September.
This suit may not be able to stop the regulations from being implemented in December.
“Injunctions are difficult to obtain, especially where regulations have been issued by a government agency, which has the legal authority to do so,” said Mark Ricciardi, founding and managing partner of Fisher & Phillips LLP’s Las Vegas office.
But that doesn’t mean it can’t happen.
“On the other hand, the lawsuit has been filed in Texas, and the Texas courts are usually employer-friendly and are suspicious of federal regulation,” Ricciardi said. “I think there is a 50-50 chance that the injunction will be issued. Of course, even if it were issued, the court of appeals could rapidly reverse it.”
Brett Sutton, a partner at Sutton Hague Law Corp., agreed with Ricciardi.
Sutton said similar efforts have been tried against the Department of Labor, which gets its power to update the overtime regulations through the Fair Labor Standard Act of 1938. Under the act, the Labor Department can update the regulations periodically at its own discretion.
Sutton said employers should start preparing for the Dec. 1 deadline.
Once employers find out who should be receiving overtime, the next step is implementing it.
“It’s best practice to track hours unless they’re clearly exempt,” said Jeff Breeden, a partner at Stewart Archibald & Barney.
Tracking hours can be done on paper or electronically, but Breeden said either way is better than having no record at all.
“They could still claim that you forced them to work off the clock, but if they filled out a time card and signed it two years ago, now they’re saying that they lied about it. That’s a tough case for them to make,” he said.
Another issue that can cause trouble for an employer is not following the proper guidelines in the law.
“A lot of employers think that if they tell their employees they can’t work overtime, they don’t have to pay them for it, and that’s not true either,” Breeden said. “If you tell an employee that overtime is not authorized, if you don’t get this approved I’m not going to pay you, that’s illegal.”
Keeping management on track is a big part of staying on course.
“Review your procedures and your training with your supervisors,” Velasquez said. “Make sure that they are aware of the newly implemented record-keeping policies.”
These policies and procedures aren’t readily thought-about in organizations with a workforce that’s mostly been treated as exempt, said Shannon Farmer, a partner in the labor and employment group at Ballard Spahr LLP’s Philadelphia office.
Implementing these types of policies can also cause new problems for morale.
“In white-collar positions, people are often used to being treated as professionals,” Farmer said. “You’re going to have a psychological component as well.”
The new regulations also have added overtime rules for another class of worker: the highly compensated employee. The overtime salary thresholds for this group moved from $100,000 to $134,004, with a minimal duties test. The new rate is equivalent to the 90th percentile of full-time salaried workers nationally.
For employees who are between the $23,660 and $47,476 in annual wages, the thresholds are equivalent to the 40th percentile of the weekly earnings of full-time salaried workers in the lowest income tax region, currently the South, Breeden said.
On January 1, 2020, the threshold will increase to $51,000, Velasquez said.
Every three years starting in 2020, the salary levels will be indexed. The minimum salary level will be indexed to the 40th percentile of salaries for full-time workers in the lowest census region, and highly compensated workers’ salary levels will be indexed to the 90th percentile of salaries for national full-time salaried employees.