Starting Dec. 1, 2016, overtime will have a whole new meaning.
Now whether this is a good or bad thing remains to be seen, but its potential impact is immense.
In summary, the Wage and Hour Division of the Department of Labor finalized the Fair Labor Standards Act on May 23, 2016, which goes into effect on Dec. 1, 2016. This law “guarantees a minimum wage for all hours worked during the workweek and overtime premium pay of not less than one and one-half times the employee's regular rate of pay for hours worked over 40 in a workweek.”
While it’s not unprecedented for the DOL to update the overtime law, this one is drastically different than adjustments made in the past since it increases the White Collar Exemption salary threshold by more than 100%.
Here are the major changes in a nutshell that help give a rough answer on if these changes apply to you. Hint, the answer is likely yes, and if it doesn’t impact you, it probably impacts someone close to you.
- The White Collar Exemption salary threshold increased from $455/workweek (or $23,660 for a full-year worker) to $913/workweek (or $47,476 for a full-year worker).
- The Highly Compensated Employee salary threshold increased from $100,000/annually to $134,004/annually
- Automatic updates to the salary threshold every three years (first update due Jan. 1, 2020)
The reason behind the new $47,476 threshold is that the DOL set the standard salary level for exempt EAP employees at the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region.
The final rule, which can be found in the Federal Register here, is very intensive. And similar to many other housing regulations, the industry has had to implement (cough, cough, TRID), there are a lot of exemptions, details and clauses to be mindful of.
Some keys details to know include:
- The 40-hour benchmark is on a week-by-week basis. For example, say an employee worked a lot of overtime at the end of the month since mortgages mostly close at the end of the month. However, they worked less than 40 hours at the beginning of the month, so overall, they didn’t exceed 160 hours for the month. It doesn't matter that it averages 40 hours for the month, they are still entitled to overtime for the weeks they worked for more than 40 hours.
- Also, employees do not have to be approved for the overtime that they work. For example, say your company is hosting an event one week for clients, and an employee spends extra time one night to organize the extra details, even though they were allotted time during the day for it. They don’t have to be approved to do that extra work, and you still have to pay them if they go over 40 hours for the week.
In essence, all the extra work and effort you’re putting into beefing up your client retention management system or understanding Fannie Mae’s new Desktop Under writer Version 10.0 is about to get called into question with this new rule.
This new law has wide ramifcations beyond employees making less than $47,476 a year. Top executives and managers are now having to balance if they will have to adjust employees’ pay, modify job descriptions or add in disciplinary actions for working overtime.
On Tuesday, AFairchild PC, a CPA firm in the DFW metroplex, hosted a seminar featuring Traci Clements, an expert attorney on the new Human Resources laws at Ferguson, Braswell & Fraser, to unpack the new rule with a group of small companies, consultants and business owners trying to digest exactly how this law will impact their business.
With each question Clements fielded from the audience, it became clear that people are extremely concerned with the implications of this law, mentioning the potential impact to employee morale or the amount of time off employees are given.
Clements noted that there are two laws in place challenging FLSA, H.R. 5813 and S.2707, both exclusively Republican sponsored, but it’s unlikely anything will become of either of these before the Dec. 1 implementation date.
For those on the executive side of the fence, Clements outlines the following steps to take.
1. Start with the duties test:
She highlighted the importance of first figuring out which employees fall under this new law. Here is a factsheet from the DOL on what falls under the exemption category. Some quick highlights of people exempt include lawyers, teachers, doctors and outside sales.
2. Figure out the costs to the business
Clements emphasized that companies should analyze the salaries and regular rates of the business, and consider what benefits may be impacted by either reclassification or a change in rate. Key questions to ask youself, “Do employees need to be converted to non-exempt?” and “Do you have an adequate system in place to track time? Time clock?”
For those wary of the new rule, the Department of Labor published a blog on some of the myths surrounding it.
This is one myth the blog mentions that fits the housing sector, given that a lot of the positions in this sector are flexible.
From the blog:
Myth: Telework and flexible schedules will be eliminated. And everyone will punch a time clock.
Truth: The FLSA is a nimble law. Employers have flexibility to choose the options that work best for their workplace, including how to keep track of hours. There’s nothing that says workers have to punch time clocks. There’s nothing that says workers have to work specific hours or in specific places.
So what does it mean if you don’t follow the law? Clements stated that companies could be subject to an IRS audit, a DOL audit or even litigation.
There’s just over two months until this law goes into effect, and with the housing industry projected to boom up to $2 trillion this year, the need for overtime isn’t going away anytime soon in housing. Something will have to give.