A note to readers: On Wednesday June 22, Pro Bono Partnership will release a second employment law update on the recent U.S. Department of Labor changes to the rules governing white collar workers. For the benefit of readers of this blog, following is an abbreviated version of the update and a link to the full article.
In May, the U.S. Department of Labor (DOL) published revised regulations governing the minimum salary that must be paid to “white collar” employees for those employees to be exempt from an entitlement to overtime (OT) pay for hours worked in excess of 40 per week. Last week, Pro Bono Partnership posted an overview of the major changes made by the DOL, which will go into effect on Dec. 1, 2016.
In this post, we offer employers a brief overview of some considerations and strategies for addressing the new federal minimum weekly salary level of $913 ($47,476 annualized) for employees who are employed in a bona fide executive, administrative, or professional (EAP) capacity. Readers can review the longer version of this overview before they develop their action plans.
The first thing an employer needs to do is identify and evaluate all of its positions that are currently classified as exempt and compensated below the new minimum salary level. Then, the employer must decide whether to raise their salaries to at least $47,476 or reclassify them as nonexempt.
The Exempt Option
If the employer wants to keep one or more employees exempt from OT, it will need to increase their salary to at least $47,476. This would be a good time to also verify that the current actual duties of all exempt employees — as opposed to what their job descriptions say their duties are — still warrant that they be so classified. If job descriptions are inaccurate, they should be updated.
The Nonexempt Option
An important consideration will be the number of hours an employee who earns less than $913 a week actually works each week. If an employee never works more than 40 hours in a week, the employee would not be entitled to overtime. Converting this employee to nonexempt would be cost neutral. But note that with exempt employees always connected to e-mail and office servers, it may be difficult for employers to accurately measure the true number of hours an employee has been regularly working.
If the decision is made to reclassify an employee as nonexempt, then the employer will need to consider strategies for managing potential OT costs.
- Keeping the same total annual wages by backing into an hourly rate that would allow the employee to earn the same amount when OT pay is factored in. Here is a formula: (Current weekly salary) / (40 hours + (OT Hours x 1.5)).
- Keeping the same total annual wages by treating the employee as a salaried nonexempt employee. The DOL has special rules relating to paying nonexempt employees on a salaried basis.
- Reducing the employee’s workload so that the employee will not work more than 40 hours and either distributing the extra work to employees who are not at risk of going over 40 hours a week or hiring a second employee to pick up some or all of the extra work.
- Determining the overall fiscal impact of having to pay additional compensation as OT and possibly reducing fringe benefits and/or eliminating or delaying pay increases, discretionary bonuses, and promotions.
Implementing the DOL changes has the potential to cause morale and legal issues, such as (1) potentially distorted salary bands; (2) two employees doing the same job, one of whom is classified as exempt and the other as nonexempt; and (3) employees seeking union representation.
Additionally, employers will need to train the newly nonexempt employees about the nonprofit’s timesheet policies, as most if not all of them will not be accustomed to recording hours worked and not working overtime without express permission from their managers. Work from home or the beach will now also be compensable time; hours that these employees will need to track. Employers should also audit the timekeeping practices of these employees to ensure that they are following proper procedures.
Communicating the Changes
Employees will have lots of questions. And employees generally have a protected right to discuss among themselves their terms and conditions of employment, including compensation.
It is important for nonprofits to recognize the employees’ concerns. For those employees who will be reclassified as nonexempt, employers should consider preparing talking points for managers about the changes, to help explain, in a consistent manner, the reason for the changes, and how the changes will impact, if at all, the employees’ compensation, benefits, and opportunities for career advancement. Give as much notice as possible to affected employees—at least 30 days would be ideal.
New Jersey nonprofits should call me at 973-240-6955, ext. 303. Connecticut and New York nonprofits should reach out to my White Plains counterpart, Jennifer Grudnowski, at 914- 328-0674, ext. 335.
Christine Michelle Duffy is a senior staff attorney with Pro Bono Partnership, in its Parsippany office, and a regular contributor to the Dodge Blog. Christine provides labor and employment legal advice for the Partnership’s clients in New Jersey.