New overtime and worker classification changes go into effect December 1st
STORY: Theresa Campbell
A local attorney advises small business owners to take steps to prepare for new overtime and worker classification changes that go into effect Dec. 1 regarding their white-collar, salaried employees.
“Most small business owners have no idea that just because you pay someone a salary, and even if it’s a good salary that both of you are happy with today, that doesn’t automatically mean that you are complying with federal law,” says Zachary Broome, a partner of Eustis law firm Bowen & Schroth.
Broome says it’s vital for employers to understand the new Fair Labor Standards Act (FLSA) rules because it will affect how they pay some of their employees.
“The increase is doubling and that’s pretty radical,” he says. “There are going to be some people not paying attention to the salary change; they may be caught unware.”
The minimum wage salary for professional, executive, administrative employees, including IT technicians and computer engineers, has been raised from $455 a week to $913 (annual salary of $47,476).
Previously, employees were exempt from overtime pay if their salaries were $23,660 per year, and Broome says there are some small companies staffed with managers who work more than 40 hours and their pay falls under the $913 a week threshold.
“What I see most likely happening is managers at the big-box stores that might be getting paid $40,000 or $45,000 a year, they are going to have to get an increase in their salary,” Broome says. A bump in pay to more than $47,476 would make them exempt from overtime.
“I would recommend any business owner to seriously evaluate whether your employees truly do meet the exemption,” says Broome, who predicts many employers will change their salaried employees to an hourly wage of 40 hours a week at their current pay rate, as long as it’s above the minimum wage.
He says there is no law that employers must pay an exempt employee a salary over hourly.
“As an attorney, I tell employers to err on the side of caution,” he says. “If you have someone who might be on the line of being exempt, give him an hourly pay, because as long as you pay them 40 hours a week and they work over, and then you pay overtime at time-and-one-half, then you’re fine.”
During a gathering with local small business owners, Broome heard from employers wanting to know how to protect themselves from overtime claims.
Broome says a proper time-keeping mechanism is a must, such as employees signing off on a time sheet of their workweek hours.
“Sometimes you have to be strict, and employees might think you’re being overbearing or totalitarian about time clocks, but the reality is it’s the only way you can protect yourself,” he says.
Scott Bowers, vice president of human resources at LassiterWare in Leesburg, says five to six of his company’s employees will be punching a clock as their jobs are being changed from exempt to non-exempt status.
Bowers believes the new FLSA rules will force some companies to increase the cost of their goods and services; others may find they need to reduce their staff. “
We have clients in the fast-food business and it’s going to be much tougher for them,” says Bowers, adding some managerial jobs could be split in half, with two managers working 29 hours a piece.
Tom Brown, human resources director and chief financial officer at Beacon College in downtown Leesburg, says the new federal rules will be “problematic for a lot of businesses.”
Brown says the college is evaluating the nontraditional hours of its admissions department employees, those who work weekend open houses and evenings with college visitors.
“They are not your standard 9-to-5 employees, so that makes it challenging,” Brown says. “What we are doing in anticipation of December 1 is doing some data collection in terms of how many hours they are actually working to see if this is a problem or not.”
President Obama gave the Department of Labor the directive to update the FLSA minimum wage and overtime pay protection for white-collar workers, with the goal of reducing wage-and-labor lawsuits.
However, Broome predicts litigation to increase.
“You’re probably going to see an increase in TV advertisements, ‘Does your employer pay you a salary less than $48,000 a year? If so, come see me.’ And they’re right. It’s pretty open and shut, and that’s why it’s a pretty lucrative business (in legal cases) because there’s not a whole lot of gray area. If someone is not an exempt employee and you’re not paying them overtime, you’ve got a problem,” he says.
The attorney noted one of the labor issues in federal courts involves overtime and employees’ work email on their smart phones.
“There’s the presumption that they were working after hours, and that work is time they are entitled overtime. So a lot of large companies are making it a punishable offense to put your work email on your phone, even if the employee wants to do it,” Broome says. “The employer is taking the affirmative step and saying ‘you’re not allowed to do this.’”
• Study FLSA exempt and nonexempt status rules. Employees earning more than the new threshold of $47, 476 can be classified as exempt from overtime—if their work is mostly executive or professional.
• Evaluate pay, classification of job duties. Make a list of employees who fit the white-collar exemption and earn less than $47,476 a year. Do their job duties meet the qualifications for exempt? In order to pay employees fairly, make changes based on their roles.
• Look over employees’ overtime hours. Can you can pay a 150 percent premium for those hours? Some small businesses may consider reducing the base pay so that straight pay and overtime pay combined, equal last year’s expense.
• Communicate changes. Let employees know in advance of changes, and that they’re part of new federal rules.