This month, I’m writing about the new overtime rules and how they might apply to your company.
My special appreciation to Toni Leiker, senior compensation consultant at TEC’s accounting firm, Clifton Gunderson, LLP, in Milwaukee, for attesting to the accuracy of my comments and those of TEC speaker Louis Licata, CEO of Licata & Associates in Independence, Ohio, from whom they were taken.
By the way, these new rules will go into effect Aug. 23. Here are some things you might want to consider:
1. The pay level is increasing. The old rules qualified any employee making less than $155 a week for overtime pay, even if the employee was declared exempt. The new rules raise this level considerably to $455 weekly or $23,660 annually.
For instance, under the old rules, if you were a retail store manager hired at $400 a week, making $10 an hour for a 40-hour work week, you would be exempt from overtime pay and could work more than 40 hours without additional pay. Not so under the new rules.
2. A "highly compensated" rule is in place. Almost all white-collar employees earning more than $100,000 a year are not eligible for overtime pay. This highly compensated employee must primarily perform office or non-manual type work. In addition, on a regular basis, he or she must perform the duties of an exempt executive, administrative or professional employee.
3. Some employees are automatically eligible for overtime regardless of rank or pay level. They include employees described as "first responders." Examples are police officers, firefighters, paramedics, emergency medical technicians and licensed practical nurses.
4. Exemptions from overtime due to work type. These new guidelines fall into three groups:
* Executive jobs. These jobs have three requirements. An employee must: 1) Manage the business, department, or division; 2) Be responsible for the work of two or more employees; and 3) Have the authority to hire or fire employees.
* Administrative jobs. The employee’s primary responsibility involves office or non-manual work directly related to the management or general operations of the employer. Discretion and independent judgment by the employee can be exercised in significant matters.
* Professional jobs. This is known as the "learned professional" exemption. The employee must perform work that requires advanced knowledge and consistent discretion and judgment. This also includes the "creative professional" whose job must involve invention, imagination, originality, or talent in a field of artistic or creative endeavor.
Are there employees who are not affected by the changes and continue to work with overtime exemptions? You bet. Outside salespeople who regularly spend time away from the workplace, and computer specialists such as systems analysts, systems designers, computer programmers, software developers and software engineers. In the latter case, they must be paid a base salary of $455 a week or higher, or an hourly rate of at least $27.63.
What happens if we choose to ignore these new rules?
We don’t want to go down that street. Look at these numbers. In 2003, the U.S. Department of Labor represented 314,660 employees involved in overtime disputes. Non-compliance employer costs exceeded $182 million, a 27.4 percent increase over 2002.
What about the statute of limitations? It’s two years on unpaid overtime cases. Incredibly, the amount owed is doubled unless an employer demonstrates that a mechanism is in place to track the hours worked. Usually, that mechanism is timeclocks. However, employers increasingly are removing timeclocks as one way to empower employees.
If the employer is found to have willfully violated the law, a recurring problem in the transitory migratory worker environment, the statute extends to three years with double damages. That can amount to six years of back overtime pay!
Here’s an ugly example. Assume an average base wage of $15 an hour and $22.50 in overtime. Assume the employees worked 10 hours overtime weekly for 50 weeks a year. That translates to 500 hours a year of overtime pay at $22.50 an hour, or $11,250 a year. A six-year penalty (three years plus double damages) now equals $67,500. With 100 employees involved, that’s approaching $7 million before legal expenses!
Incidentally, these new overtime rules and regulations are explained in more than 500 pages of Department of Labor compliance guidelines.
Finally, one additional point pertinent to Wisconsin Child Labor Regulations. Minors 16 and 17 years old get overtime pay if they work more than 10 hours a day or 40 hours a week, whichever is greater. Contact the Wisconsin Equal Rights Division/Labor Standards Bureau for additional guidance here.
There are, of course, exceptions to every rule, and especially with new rules, there are always exceptions and new interpretations, so that bureaucrats can write new rules for all of us to comply with. In TEC, our members are telling us that when in doubt, "document." Make sure you have hard copy documentation to cover any gray areas in the application of overtime rules in your business.
Harry S. Dennis III is the president of TEC (The Executive Committee) in Wisconsin and Michigan. TEC is a professional development group for CEOs, presidents and business owners. He can be reached at (262) 821-3340.
June 11, 2004 Small Business Times, Milwaukee, WI