05 April 2016

New White Collar Overtime Rule Might Be Law Before July

A major change in federal overtime law could take effect within a few months.

The U.S. Department of Labor (DOL) had adopted a “final rule” changing the overtime exemption for millions of “white-collar” workers under the Fair Labor Standards Act. The final rule has not yet been made public. But it is likely to be similar to the “proposed rule” that the DOL issued in July 2015. That proposal would increase the minimum salary for exempt administrative, executive, and professional employees from $455 per week (or $23,660 per year) to approximately $970 per week (or $50,440 per year) in 2016. It would also recalculate the minimum salary every year to ensure that it remains equal to the 40th percentile of earnings for full-time salaried workers. If overall earnings rise, the minimum exempt salary would increase as well.

When Will The Final Regulation Be Effective?

The DOL’s final rule could become law in as little as three months. The DOL recently submitted the rule to the Office of Management and Budget (OMB) in the White House. OMB review is the last step before the rule is officially published. OMB review typically takes four to six weeks, which means the final rule could be published as early as mid to late April. The DOL’s original plan was that the rule would take effect 60 days after publication. If the final rule maintains that time line, employers might have to comply with the new rule as early as late June of this year. This is sooner than the DOL predicted some months ago.

Action Steps for Employers to Take Now

Several groups have vowed to mount political challenges to the rule. But there is no way for employers to know whether any of those challenges will succeed.

Therefore, employers should begin now to prepare for the expected changes.

  • Review Current Workforce Wage Rates. Employers should identify each employee who is presently exempt from overtime, but whose salary is close to or below $970 per week.
  • Determine Whether to Increase Salary to Preserve Exempt Status. For any exempt employee whose weekly salary is below the expected new minimum of $970, the employer must decide whether to (1) increase the employee’s salary to maintain the employee’s exempt status, or (2) reclassify the employee as non-exempt. Keep in mind that the minimum exempt salary might increase every year if the final rule includes the automatic adjustment mechanism from the DOL’s initial proposal.
  • Determine Method of Payment and Recording of Hours for Newly Non-exempt Employees. If the employer decides that a presently-exempt employee will become non-exempt, the employer will also have to decide (1) the non-exempt method by which the employee will be paid (hourly, weekly, or other), and (2) how the employer will track and record the hours the employee works, including overtime hours and paid time off.
  • Update or Create Good Policies. Employers should also review current policies regarding timekeeping, “off-the-clock” work, and overtime, and consider training newly non-exempt employees regarding these policies.
  • Develop a Communication Plan. The new rule is likely to have a major impact on many employees – not only on their pay, but on employee morale and workplace culture as well. An effective communication plan, including training for managers, will be important in successfully implementing the changes the new overtime rule will bring.

Miller Johnson’s wage and hour attorneys will report to you as the final rule moves toward implementation. We will be offering seminars in both Kalamazoo and Grand Rapids in the coming months to help employers manage the changes that are required by the new rule. In the meantime, if you have any questions about how to prepare for the new rule, or wage and hour law in general, please contact your Miller Johnson attorney or the authors of this alert.