Employers examine federal overtime ruling

New minimum salary threshold could change business models

Tomorsky

About 4.2 million more workers will be eligible for overtime pay beginning Dec. 1, under a final rule issued last month by the U.S. Department of Labor.

The rule significantly increased the minimum salary threshold at which non-exempt employees are required to receive overtime pay under the Fair Labor Standards Act.

Salaried executive, administrative and professional workers earning less than $47,476 must be paid time-and-a-half for overtime work past 40 hours in a week. The previous threshold for this regulation was $23,660. The salary threshold will be automatically changed every three years to reflect wage growth over time.

Goldstein
Goldstein

“For all intents and purposes, the salary threshold was a non-factor for a long period of time,” said Mark Goldstein, president of Goldstein Law Group S.C. in Milwaukee.

In its ruling, the DOL says employers have several options to comply with the rule: 1) Pay time-and-a-half for overtime work; 2) Raise workers’ salaries above the new threshold; 3) Limit workers’ hours to 40 per week; or 4) Some combination of the options.

The significant increase in the salary threshold, as well as the time by which employers must implement it – Dec. 1 – was sharply criticized by several business groups.

Many individual business executives also took issue with the rule. In a BizPoll on BizTimes.com in the days following the May 18 ruling, nearly 64 percent of respondents indicated the rule is “an overreach by the government and will hurt businesses and lead to fewer jobs.”

Whether or not they agree with it, employers are going to have to move into high gear to begin evaluating how to comply with the rule, said Thomas Godar, a shareholder on the labor & employment team at Whyte Hirschboeck Dudek S.C. in Waukesha.

Godar
Godar

“This is certainly going to go forward on December 1 unless a court injunction is offered – I guess anything’s possible, I just don’t think people should count on that,” Godar said.

The impact of the ruling will vary depending on a company’s industry, location and size, he said.

“The burden may be seen as falling on retailers and call centers, hospitality and some community health care, and I think the burden may fall on smaller versus larger employers,” Godar said.

Employers with the most exposure are those whose employees work a lot of overtime or don’t make minimum wage, Goldstein said.

Employees whose work fluctuates seasonally, such as CPAs, could be heavily impacted, said Dennis Tomorsky, CPA, J.D., CGMA, president and chief executive officer of the Wisconsin Institute of Certified Public Accountants.

Many of the WICPA’s 7,700 members work in tax return preparation, where an employer may ask an employee to work far more than 40 hours per week during the rush leading up to Tax Day, but allow flexible and reduced hours in other seasons, he said.

“The larger CPA firms in the major metropolitan areas, when they bring CPAs or accountants in at the entry level, they’re already paying over that limit so it’s probably not going to have much of an impact on larger firms in major metropolitan areas,” Tomorsky said.

Tomorsky
Tomorsky

But for rural or small CPA firms, the ruling could force employers to hire more part-time or seasonal workers to avoid the high overtime cost, he said.

Exactly how to track overtime hours in an age of smartphones equipped with work email is on many employers’ minds, said Laurie Greenlees, human resource business advisor and manager of the HR Hotline at Waukesha-based MRA-The Management Association.

The 24/7 HR Hotline, which usually receives 95 requests per day, set an all-time record the day after the DOL’s final rule was released with 148 calls, Greenlees said.

Some employers may have to institute policies that prohibit overtime hours such as those spent checking work emails at home, Goldstein said.

“We’d like to think of employees as aligned or bought in and willing to go the extra mile or willing to do whatever needs to be done,” he said. “The law is kind of perverse where it creates this disincentive.”

MRA has more than 4,000 member companies with more than 800,000 employees. Its members are based in the Midwest, but often have locations in other states as well.

“Our members are very concerned, not only from a budgetary standpoint, but also how it will impact their company from an employee morale and company culture standpoint,” Greenlees said, particularly when it comes to transitioning exempt workers to non-exempt status.

Employers will need to carefully evaluate each employee, the hours he or she works and his or her duties, said Kathryn Helmke, human resource government affairs director at MRA.

“Let’s say you had someone at $36,000 a year,” Helmke said. “If they typically work about five hours of overtime a week, they’re still under the $47,000 threshold. If they work 10 hours of overtime a week, now they’re over the 47,000 threshold.”

One advantage of the new rule, Goldstein said, is that it also allows employers to count bonuses and commissions as part of total pay.

Employers will likely have to shift duties around among employees or redistribute the cost of reducing overtime or giving raises.

“There is anxiety out there, but it shouldn’t be outright panic,” he said. “It should be a time to think strategy about what one’s doing and why.”

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Molly Dill, former BizTimes Milwaukee managing editor.

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