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Despite the recent injunction blocking new overtime rules I recommend you proceed with an exempt vs. non-exempt employee status review. -- Sherry Robertson, IGO HR Solutions, 919-819-3335

You may have heard the breaking news about the federal overtime rule. On November 22, 2016, a federal judge in Texas issued a nationwide injunction blocking the Obama Administration’s executive order regarding overtime. The federal district court for the Eastern District of Texas granted an emergency request to put a hold on the Dec. 1, 2016, effective date for the new federal overtime rule until it can rule on two challenges to the rule itself. (Nevada v U.S. Department of Labor, 16-00731, U.S. District Court, Eastern District of Texas (Sherman)) 

However, this is only temporary. What will happen during the new administration remains to be seen. No matter what happens in the future, I recommend you address your current exempt and nonexempt employee classifications. Take the opportunity to review what determines exempt from nonexempt and ensure you can defend your classifications.

Note: The following information was gathered from outside sources and was developed assuming the new overtime rules would take effect.
Despite the injunction, the advice is still worthwhile.--Sherry 

1. Determine if an employee is truly exempt. Under the previous rule, most employees are exempt from overtime pay if they 1) earn a minimum, guaranteed salary each week and work at certain jobs, and 2) earn more than $23,660. Now that the total minimum salary will more than double to $47,476, employers should determine if an employee is exempt, or if they are eligible for overtime pay. Keep in mind, pay level is not the only criteria. Exempt employees must meet eligibility criteria of their duties within their job description: Executive, Highly Compensated, Administrative; Outside Sales, etc.

2. Consider how to address employee status. (SEE BELOW)

3. Will a company reorganization be required? No matter what set of options you go with, there is a strong likelihood you will need to reorganize workloads, change schedules, hire new employees, spread work hours, or make other adjustments to accommodate the changes needed to comply with the new overtime rules.

4. Explore how to recover any financial changes that come about. For example, does it make more sense to raise service and product prices, or hold on pay raises for newly non-exempt employees?

5. Ask for help. 

WHAT ARE THE OPTIONS? (Please note: Each situation is different.  IGO & IGO HR Solutions is NOT indicating one is “better” than the other. We are presenting them for YOUR consideration.)

1. Increase salary to new threshold. If you have currently-exempt employees whose annual salary is not far below the new threshold of $47,476, you may wish to raise their salaries to meet the new threshold and continue to classify them as exempt (assuming they meet the duties test and otherwise qualify as exempt) – and consider assigning them additional responsibilities.

2. Reclassify to nonexempt and do nothing more. If you have currently-exempt employees whose salaries fall well below the new threshold and who work no more than 40 hours per week, you may wish to reclassify them as nonexempt and do nothing more.

3. Reclassify as nonexempt and reduce hours. If you have currently-exempt employees whose salaries fall well below the new threshold, you may wish to reclassify them as nonexempt, begin tracking their hours, and reduce their hours to a maximum of 40 hours per week so that you are not required to pay them overtime. This option may require that you reconfigure workloads or hire new employees.

4. Reclassify as nonexempt and pay overtime above and beyond existing salary. If you have currently-exempt employees whose salaries fall well below the new threshold, you may wish to reclassify them as nonexempt, begin tracking their hours, and pay them time-and-a-half for hours worked above 40 hours per week.

5. Reclassify as nonexempt and reduce base salary to account for anticipated overtime pay. If you have currently-exempt employees whose salaries fall well below the new threshold, you may wish to reclassify them as nonexempt and reduce their base salaries to account for anticipated overtime pay – the ultimate goal being to pay them the same wages they receive today for the same hours they work today (while ensuring that they continue to receive at least the required minimum hourly wage).

Reminder: If you have employees over the salary threshold, and weren’t paying out any overtime in the past, the only change is to have everyone complete a timesheet.

1. Can you defend your exempt classifications? Make sure that you can defend all exempt employee classifications. Even employees who meet or exceed the new salary threshold still need to meet the duties test in order to be classified as exempt from overtime requirements. This is the time to make sure you’ve got your classifications right.

2. Ensure you have an effective time-keeping systems in place. Make sure that non-exempt employees work 40 or fewer hours per week – or get paid time-and-a-half for hours worked in excess of 40 per week. Accomplishing this task will require clear – and clearly-communicated – timekeeping practices.

3. Establish strict policies about working off-site. Answering cell-phone calls and checking emails counts as work, and time spent on these activities counts as work time that needs to be recorded – or avoided. Employers that fail to put clear policies in place regarding off-site work may face scrutiny from regulators – or even litigation from disgruntled employees.

4. Communicate new practices in a clear and positive manner.
The new overtime rules means making difficult changes that will benefit some employees and not others. Given the importance of employee morale, it’s critical that you develop a thoughtful strategy to communicate necessary changes to your employees.

5. Don’t delay. Compliance is complex. Develop a plan, build in extra time for unforeseen issues, and implement the plan.

“4 ways employers can prepare for the new overtime rule” by Benjamin Hase; 11/15/16;
“Plenty of Options with New Overtime Rule” by David Weil; 5/18/16 
“What you need to know about overtime rules” by The NCRLA; 10/4/16

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