Desperate pleas for advice on how to handle the new American overtime rule are already being heard. Making all workers of questionable status non-exempt overtime eligible is the safest solution, while ignoring the law announced yesterday is the worst response.
The federal law that compels time and one-half overtime pay requirements for most jobs in most industries in the United States has bound employers since 1938. But compliance just got a lot tougher. The short salary test prong of the exemption requirements will more than double when the newly published threshold of $47,476 goes into effect December 1, 2016.
Many human resources and compensation people are flailing around looking for guidance. This will not be pretty. Ignore the screamers and the deniers. Heed the cautious advice of competent professionals.
Keep in mind that the Fair Labor Standard Act (FLSA) only applies to workers and not to jobs or positions. Employers find it easier to classify everyone with a particular title as exempt or non-exempt and imagine that settles the issue. Wrong. Wake up. The feds don't CARE how you name jobs, what you call them or how you choose to classify them. They only care about the actual principal duties and responsibilities of the individual workers, because that is how the law reads.
Best practices or guidelines will come from federal court decisions that established precedents on the interpretation of the rules. You generally need attorneys to decipher those. Be cautious about imitating practices that may be illegal. Saying that the company next door classifies their secretaries as exempt does not make it true nor is it a useful defense. Federal courts don't rely on gossip or give free passes to groups of scofflaws.
Actual worker circumstances govern exemption, such as the guaranteed salary exceeding the threshold and the duties performed (not theoretical documented responsibilities) meeting the exemption tests. Unless your entire industry stands outside the jurisdiction of the FLSA, your workers must be paid according to the new federal rule. Your internal pay classification choice is subject to review. If you declare someone exempt and they complain (anonymously, of course) to DOL Wage-Hour, you face a world of hurt. If they are found be covered by the new rule, you will owe them back pay, you will be fined and you will possibly be exposed to additional serious penalties. Your entire organization will probably be singled out for every worker to be tested by federal examination agents. Deliberate repeat offenses flaunting the FLSA also carry prison terms. Don't mess with FLSA: their cases go to federal courts and are tried by the US Solicitor General's office, a post usually held by the best practicing attorney in the nation.
This is just my layman's opinion, of course, since only federal judges can issue rulings and only labor counsel may issue authoritative legal advice. We mere HR/comp minions can only voice personal opinions based on our experience and the ability to read English.
The new rule guarantees more workers time and a half overtime when worked. That's a big WHEN, because control over their hours was never before a critical issue for those newly eligible employees or their bosses ... until now. Many companies will fumble, blunder and be fined as they struggle to properly adjust to the new rule.
Serious economic effects can be expected. The Secretary of Labor says the number of full time workers eligible for overtime will grow 500%. Productivity should fall as companies curtail hours to avoid overtime. Labor costs will soar as hours that used to be irrelevant due to the fixed salary must now be counted and paid 50% more for extra work. Outsourcing will increase and automation should expand, as pay is artificially inflated by government edict. When government orders human work hours to become more expensive than the market demands, other operational cost efficiencies will be pursued.
With this new challenge, the trend to eliminate compensation specialist jobs may be reversed. What have I missed?
E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience. After corporate HR posts, he consulted to virtually every industry throughout North America before becoming Senior Associate of pay survey software publisher ERI until recently returning to consulting. A prolific writer (author of the Performance Management Workbook) and speaker, Jim gave expert witness testimony in many reasonable executive compensation cases both for and against the Internal Revenue Service and also serves on the Advisory Board of the Compensation and Benefits Review.
Image per DOL WHD of POTUS signing 2014 memo directing FLSA change