Welcome to PayTech’s June Update
May 18, the highly anticipated new Final Rule on the Fair Labor Standards Act was published by the U.S. Labor Secretary. The Rule takes effect on December 1, 2016 and sets the minimum salary threshold for exempt employees at $47,476 ($913 weekly), up from the current $23,660 annually. The final rule does not make any changes to the “duties test” that determines whether white collar salaried workers earning more than the salary threshold are ineligible for overtime pay.
In addition to raising the salary threshold, the final regulations also address:
Bonuses, incentive payments, and commissions. The final rule will allow up to 10% of the salary threshold for non-highly compensated employee (HCE) to be met by non-discretionary bonuses, incentive pay, or commissions, provided these payments are made on at least a quarterly basis.
Automatic updates. The final rule will update the salary threshold every three years, beginning January 1, 2020. Each update will raise the standard threshold to the 40th percentile of full-time salaried workers in the lowest-wage Census region, which is estimated to be $51,168 in 2020. The HCE threshold will increase to the 90th percentile of full-time salaried workers nationally, estimated to be $147,524 in 2020.
Standard salary level. The final rule will raise the standard salary threshold to equal the 40th percentile of weekly earnings for full-time salaried workers in the lowest-wage Census region currently the South. This will raise it from $455 a week to $913 a week ($47,476 for a full-year worker). This means that 35 percent of full-time salaried workers will be automatically entitled to overtime, based solely on their salary.
Highly Compensated Employees (HCE) salary level. The rule also updates the total annual compensation level above which most white collar workers will be ineligible for overtime. The final rule raises this level to the 90th percentile of full-time salaried workers nationally, or from the current $100,000 to $134,004 a year.
Exempt salaried employees who fall below the minimum threshold salary will have to be reclassified as non-exempt, or will have to have their salary reset to meet the minimum standard. Additionally, employers will need to consider the “compression effect” on other positions when reclassifying employees. Employers should analyze the direct and indirect impact this final rule will have on its workforce far in advance of the effective date.
The Obama administration unveiled a new rule Wednesday that will make millions of middle-income workers eligible for overtime pay, a move that delivers a long-sought victory for labor groups.
The regulations, which were last updated more than a decade ago, would let full-time salaried employees earn overtime if they make up to $47,476 a year, more than double the current threshold of $23,660 a year. The Labor Department estimates that the rule would boost the pay of 4.2 million additional workers.
The change is scheduled to take effect Dec. 1st. The move caps a long-running effort by the Obama administration to aid low- and middle-income workers whose paychecks have not budged much in the last few decades, even as the top earners in America have seen their compensation soar. The last update to the rules came in 2004, and Wednesday’s announcement is the third update to the salary threshold for overtime regulations in 40 years.
“Along with health care reform, this is one of the most important measures that the Obama administration has implemented to help middle-wage workers,” said Jared Bernstein, a former chief economist for Vice President Biden and a senior fellow at the Center on Budget and Policy Priorities.
Who’s affected by the new overtime pay rule?
About 35 percent of full-time salaried employees will be eligible for time and a half when they work extra hours under the new rule, up significantly from the 7 percent who qualify under the current threshold, according to the Labor Department.
The shift was swiftly criticized by small business owners, nonprofit groups and universities that say they may have to switch some salaried workers to hourly positions to afford the new threshold. And instead of seeing bigger paychecks, some salaried workers may be assigned fewer hours, they said.
“For many of these types of employees they’re going to be viewing it as a demotion,” said David French, senior vice president of government relations for the National Retail Federation… (read more here)
Device Management and the New Overtime Rule
Experts say HR should prepare to track the time employees spend using smartphones for work
ORLANDO, Fla.—Several studies reveal that employees who use smartphones work longer hours. Little wonder.
Employees can access work after regular hours from home or on the weekends via e-mail, texting and a plethora of apps such as WhatsApp, Slack, Asana or Basecamp. They do work through instant messaging via LinkedIn and Facebook’s Messenger, too.
Now that the U.S. Department of Labor’s (DOL’s) new overtime rule has been issued, will companies have to create or change their device management policies to accommodate the new law?
Yes, experts say. They may need to use software to help them track hours, too. And organizations should be prepared for lawsuits from employees who aren’t being compensated for all their time worked. That’s because as a result of the new rule, millions of previously exempt employees will be eligible for overtime when the law goes into effect later this year.
HR professionals like Wendy Dailey are concerned about what this change will mean for people who use their devices for work.
“I’m a little disappointed that the rules are not becoming more flexible for hourly employees, which is where my concerns regarding mobile devices are,” said Dailey, a facilities and services employment coordinator at South Dakota State University, in an interview with SHRM Online.
“We utilize mobile devices for the majority of our hourly staff, to communicate work assignments [and] track time and communication with supervisors,” she said. “We have allowed staff to take these devices home and utilize them for some non work-related apps.
“For some of our staff, this has caused some blurred lines between when their workday begins and ends,” she added.
Have Smartphone, Will Work
Employees who use smartphones wind up working about 13.5 hours every day and as many as 72 hours each week—which includes weekends, according to a 2015 study from the executive education firm Center for Creative Leadership. The study also revealed that aside from sleeping, people only spend about three hours a day doing other activities like exercising or spending time with their families.
“While technology may be a logical scapegoat, it is actually just a new-age mask for an age-old problem: poor management and poor leadership,” the report stated.
SAP Chief Human Resources Officer Stefan Ries concurred.
Although people are connected to smart devices “24/7, it is very important for each and every employee to realize that you need a balanced life,” Ries told SHRM Online during the Walldorf, Germany-based software company’s technology conference here in Fla. Otherwise, people will “burn out.” What employers should do, he said, is spend time educating their leaders to set a tone where people aren’t expected to work on their off hours.
“Don’t expect employees to answer an e-mail within the next five minutes” of it being sent. “It won’t help you be an employer of choice.”
What Should HR Do?
Andrew Volin, an expert on wage and hour compensation and a partner at the Denver-based law firm of Sherman & Howard, had three tips for employers adjusting to the new overtime regulation:
- Figure out for each job whether it will be exempt, and if not, how to approach the overtime issue.
- For workers who will be hourly, figure out how to track all hours worked—using verification systems as well.
- Determine the communications and training needed to implement these changes.
Volin said he believes the new law will change the workplace culture. “There will be an increased emphasis on tracking hours worked and an increased number of claims for companies who stumble at this step.”
While “most workers can have their compensation prospectively changed, some may pose special problems. For example, someone with an employment contract might create a challenge if the change is not permitted by their contract,” he said.
Volin added that he expects some companies will seek out technologies that will help better track employee hours.
Once an employer has figured out that a job will now be classified as nonexempt, Volin said that an employer can choose from these tactics:
- Increase the salary level to maintain the exemption—and not worry about overtime.
- Divide the current salary by 40 hours and switch to paying at an hourly rate—and worry about overtime.
- Convert an employee from salaried to hourly, based on actual hours worked, so the net cost is the same. But this will require “reliable information about hours worked, and final pay will vary with hours worked,” Volin said.
- Convert an employee from salaried exempt to salaried nonexempt and pay overtime for excess hours.
- Institute a fluctuating workweek where “salary is for all hours worked, including overtime.”
An accounting employee should be classified as exempt or nonexempt based on her job duties, as defined by the Fair Labor Standards Act or state law. Sometimes you can correctly guess whether an employee is exempt or nonexempt based on his accounting title. However, you should not assume, because an employee can appear to be exempt or nonexempt when he’s actually the other.
An accounting employee who performs executive, professional or administrative duties as defined by the FLSA is exempt. To qualify for exempt status, an administrative accounting employee’s main duty must be performing non-manual work directly linked to your customers or the overall management of your company. She must also frequently use personal discretion and judgment while performing her job. An executive accounting employee who has the authority to hire and fire other workers, whose main job is managing the company or a division within it, and who has at least two full-time employees working under her is exempt. To qualify for professional exemption, an accounting employee’s main duty must require advanced knowledge. She must have undergone prolonged specialized training in her area of practice and use personal judgment and discretion frequently on the job.
An accounting employee who does not perform the job duties required for exempt status is nonexempt. A nonexempt employee typically performs routine work with specific rules and standards. Under federal law, these employees must receive overtime if they work more than 40 hours per week, regardless of whether they are paid on a salary or hourly basis. You do not have to pay exempt employees overtime. An employer can face audits and fines from the federal or state labor department if it tries to reduce overtime costs by switching a nonexempt employee to exempt.
A chief financial officer or comptroller who manages two or more employees is exempt. A certified public accountant who does professional accounting work is exempt, but a CPA who does only ordinary bookkeeping is nonexempt. For example, a bookkeeper who only handles delinquent accounts is nonexempt because he does not frequently exercise personal discretion or judgment. A staff accountant with specialized training and who uses personal judgment and discretion often is exempt, but an accounting assistant or clerk is nonexempt.
Some states follow FLSA guidelines for classifying employees. Others have their own requirements. Employers should consider both federal and state laws where applicable. For example, employers in Arizona must apply FLSA exempt rules, but employers in California must consider both federal and California law. In addition, under the FLSA, salaried exempt employees must receive no less than $455 per week, as of 2013, but the state may have a different salary requirement.
Figuring exempt or nonexempt status is a complex issue, as you must consider all aspects of the employee’s job duties and weigh them against the legal requirements. For clarification, contact the U.S. Department of Labor, Wage and Hour Division, the state labor department, an employment consultant or lawyer.