Business owners will need to pay closer attention to how many hours some of their salaried employees are putting in or risk violating new U.S. Department of Labor rules.
The new Fair Labor Standards Act’s minimum wage and overtime pay requirements were proposed three years ago but did not earn final approval until this past September. The rule, which kicked in Jan. 1, states that salaried employees earning less than $680 per week are eligible for overtime. Previously, salaried employees earning less than $450 per week were eligible for overtime.
Sarah Coenen, an attorney with Epiphany Law in Appleton, says the change could affect 1.3 million employees across the country. Implementing the rule change will be hardest on small- and mid-sized businesses, she adds.
“Most larger businesses already went ahead and made changes when the rule originally was proposed, so they are set to go,” Coenen says.
Businesses that did not act when the rule was originally proposed have a couple of options they can take, Coenen says. An employer can either take salaried employees now making less than $35,568 annually and make them hourly or give them a raise to get them over the level.
Some workers may lose out if they are moved from salaried to hourly, says Michelle Higgins, an associate editor-human resources with J. J. Keller & Associates.
“Not only is there the potential to lose out financially since hourly workers could be sent home early depending on how business is, but for some people, it could affect their morale,” she says. “There’s a little more prestige associated with being salaried for some.”
If employers do change a worker’s status from salaried to hourly, Higgins says managers need to communicate that the change is not due to performance, but to compliance issues. “And some employees may rather be hourly since they may be able to take more time off,” she says. “With work-life balance important to so many workers, it may be nice to be able to leave after 40 hours.”
Employers have the option of providing employees with a bonus to put them over the $35,568 benchmark, Higgins says. “The nondiscretionary bonuses and incentive payments can only satisfy up to 10 percent of the standard salary level,” she says.
Higgins says businesses that do not comply with the rule change could face several penalties.
“Employers may have to pay back pay, plus some financial penalties,” she says.
Coenen says some employers may be caught off-guard since the change was proposed a couple of years ago and is only going into effect now. To help raise awareness about the rule change and as a way to help clients that may be affected, she held an informational session at the Heart of the Valley Chamber of Commerce in November.
“It’s about education and helping them prepare,” Coenen says. “I haven’t heard much panic from clients yet about what they should be doing regarding employees who may fall under the rule change, but it’s still important to push out that information and make sure everyone is aware.”
What hasn’t changed
With the new rules regarding overtime and full-time employees now in effect, there is one aspect of the regulation that has not changed: who qualifies as an exempt (salaried) or non-exempt (hourly) employee. To be an exempt employee — and not qualify for overtime — workers need to pass a duties test. To qualify, an exempt employee needs to do at least one of the following:
• Manage a department or subdivision; must supervise two or more employees.
• Perform high-level office or non-manual work directly related to business management. HR specialists and the president’s executive assistant, for example, qualify, but not data entry clerks or administrative assistants, who handle tasks such as copying or filing.
• Qualify as a “learned professional,” such as an engineer, attorney or artistic professional.
• IT professionals, such as system analysts, computer programmers, software engineers or other skilled professionals.
Why the increase?
Prior to the latest increase in the standard salary level, the last time the amount changed was in 2004. The Department of Labor says the latest increase accounts for wage growth since then. The rate is set by looking at data from across the country and determining the 20th percentile of earnings for full-time workers in the lowest-wage census region, which is normally the South.