Prepare for overtime law to debut in December
By Philip Dickey, MPH, PHR, SHRM-CP
There will be no stopping the federal overtime law, and the many businesses that opposed its passage can now only prepare for its Dec. 1, 2016 effective date. The U.S. Department of Labor (DoL) issued the final version of the long-anticipated overtime rule on May 18. While the final rule reduced the overtime exemption threshold from $50,440 to $47,476, this figure is still more than double the current threshold of $23,660.
Remember: The threshold represents the salary below which overtime (at least 150% of hourly wage) must be paid by the employer when employees work more than 40 hours in a work week. Starting Dec. 1, any employee making less than $47,476 will be eligible for overtime pay.
Currently, an employee only gets overtime if he or she has a salary of $23,660 or less, a threshold that means relatively few medical practice employees are eligible for overtime pay. The final overtime rule will make millions of currently exempt employees eligible for overtime, and the new threshold of $47,476 will cover a wide array of medical practice positions such front desk staff, coders, billers, and medical assistants. You must begin preparations now, and it’s not simply a matter of budgeting for potentially much more overhead – you must also develop methods to track overtime and determine which employees will become eligible.
Aside from the slight reduction to the salary threshold, the only other piece of good news is that employers have more time to prepare. The proposed rule offered only 60 days to comply while the final rule sets Dec. 1 as the deadline.
Threshold to automatically increase
The impact of the overtime rule will escalate in coming years; the final rule includes a provision that will increase the minimum salary threshold every three years. Employers will have to continuously monitor the minimum acceptable salary level for exempt classification, identify affected employees, and assess whether to reclassify those employees or restructure jobs. Based on current projections, the salary threshold is expected to exceed $51,000 in its first three-year update on Jan. 1, 2020.
Depending on the timing of the increases, employers may need to restructure their review and compensation cycles to better align with this new regulatory scheme and train managers to account for overtime changes when they are making decisions on merit raises and bonuses. In addition, some employers will need to take a long, hard look three years ahead to decide whether continued salary increases are sustainable or whether certain positions should simply be reclassified at the time of the review.
Duties tests and highly compensated employees
The final overtime rule made no changes to the duties test. However, it did raise the salary threshold for highly compensated employees from $100,000 to $134,004, or the 90th percentile of full-time salaried workers nationally. Like the standard exemption threshold, the highly compensated employee exemption threshold will increase every three years beginning Jan. 1, 2020.
Note: The rule can also indirectly affect employee benefits. Some exempt employees enjoy additional benefits or perks that they may lose when reclassified as nonexempt (and thus eligible for overtime).
Steps to take now
The final overtime rule will have wide-ranging effects on your practice and you need to take steps now so you will be compliant on Dec. 1. Below is a list of suggested steps to take now:
Assess the costs of reclassification vs. salary increases. Determine if it’s feasible to raise salaries to retain the exempt status of employees with salaries very close to the new threshold. Reclassify those who fall under the new threshold and determine their pay structure – salaried plus half time, hourly plus time-and-a-half, bonus and commission changes. Nondiscretionary bonuses and commissions are included in the calculation of the exempt salary threshold up to 10% of the required salary level, as long as employers pay those amounts on a quarterly or more frequent basis.
Implement and communicate the compliant approach to affected employees and managers. Determine whether you will communicate the rule’s changes via one-on-one meetings, small group meetings, large group meetings, memos or a combination of these approaches.
Train supervisors on managing nonexempt employees.
Check whether state wage notification laws require a pay period or 30 days’ notice of any change in pay and send out notices accordingly, if required.
Determine effects on benefits as a result of reclassification.
Educate your managers on how to:
Train nonexempt employees to track and
Avoid encouraging after-hours work, especially if it leads to efforts to game the system (i.e. by being less productive during working hours to create more overtime hours).
Watch employee morale in the event of reclassification. Reclassified employees may view the change as a demotion. Communications with employees should emphasize that reclassification is purely the result of regulatory changes. Employers should note that any reclassification is not a reflection of the value of an employee’s contributions to the organization and that the company will work with affected employees to make a successful transition.
Expect aggressive enforcement
The top officials in the Obama administration charged with enforcing the rule are Secretary of Labor Thomas Perez and Wage and Hour Division Administrator David Weil. Both have indicated their commitment to increased enforcement and the new rule is expected to be policed aggressively.
— Philip Dickey, MPH, PHR, SHRM-CP (firstname.lastname@example.org). The author is a Partner and Director of Human Resources at DoctorsManagement.