While many employers will have to conduct cost-benefit analyses in light of the DOL’s new overtime rules, the final rules are better than what some legal experts were expecting.
“Employers should be very happy,” says Allan Bloom, co-head of Proskauer’s wage and hour practice group and a partner in the firm’s labor and employment practice. “It’s much better than any of us expected,” he adds, noting there are several “gifts” the DOL gave employers in the final rule, including no changes to any parts of the duties test.
“That was one of those issues that was raised in the proposal and there was some thought that the DOL might in the final rule put forward some kind of changes to the duties test,” added Nancy Vary, director of the compliance consulting center at Xerox HR Services.” That did not happen, and from an administrative point of view I think that is welcome.”
Bloom says that a few other timing issues should be welcomed by employers, such as the December implementation date as well as a three-year increase to the salary threshold versus an annual change in the proposed rules.
The new threshold will be updated every three years to make sure it stays at the 40th percentile of full-time salaries in the lowest income region of the country. Based on wage growth projections, that means the overtime threshold could rise to $51,000 by 2020, the White House noted.
Lisa Horn, spokesperson for the Partnership to Protect Workplace Opportunity and director of congressional affairs at the Society for Human Resource Management maintains the salary threshold reduction in the final rules is a “token reduction” and that “employers will not be able to absorb this increase, particularly in such a short time frame, and DOL’s token reduction will not alleviate the harm this rule will do to these small businesses, nonprofits, colleges and universities, and local governments across the country, their employees and the people and communities that they serve.”
Another addition to the final rule Bloom points to is the inclusion of bonuses and commissions of up to 10% into the salary figures.
For instance, if an HR specialist makes $44,000 today and gets a $4,000 bonus, his total income ($48,000) will mean that he will remain exempt from overtime.
Bloom says the key takeaway is that new salary threshold of $47, 476.
“Make a list of all your exempt employees under that threshold. Once you have that list, consisting probably of entry level and junior professionals, you need to make a decision – move them up to $47,476 and change [their status to exempt] or start paying them overtime and figure out what’s going to cost you more,” he says. “It’s going to be a cost-benefit analysis for the majority of employers.”
Echoing his suggestions, Xerox’s Vary advises that benefits and compensation managers also train leadership on these new rules. “It’s been 2004 since the last change and it wasn’t as significant as these changes,” she says.
Be cautious
Something employers will have to consider seriously as they think about reclassifying employees from salaried exempt positions to hourly positions is the morale factor, she cautions.
“If you have an employee who has worked their way up the chain to be an exempt manager or exempt supervisor, but they weren’t making $47,000 a year, now you change that and it could potentially affect benefits like vacation and PTO that the employer’s program may have tagged only to exempt employees,” she says. “You may be walking into a situation where you’re going to have to deal with unknown costs and we all know what the human factor can do in terms of a culture or workforce.”
“You may be walking into a situation where you’re going to have to deal with unknown costs and we all know what the human factor can do in terms of a culture or workforce.”
From compensation to benefits and workplace culture, “it’s all interrelated and you can’t point to one thing [to change], except you do know that somehow there is a cost that employers are going to have to deal with and they’re going to have to figure out what’s best for the workforce,” Vary says. “It’s complicated.”
And while a majority of employers and advocacy groups are taking a deep breath today, some have championed the DOL’s move, saying it will help get American workers back on track.
“This new rule is a historic advance for fair pay and equal opportunity, and workers and families in every corner of the country will benefit,” says Debra L. Ness, president, National Partnership for Women & Families. The Economic Policy Institute estimates that a total of 12.5 million workers will be newly eligible for overtime pay or see their existing rights strengthened.
Others haven’t been as warm to the announcement.
“While changes in regulations were meant to benefit employees, a change of this magnitude will do the opposite. There likely will be fewer opportunities for overtime pay as employers are forced to restructure their compensation and staffing,” Hank Jackson, president and CEO of SHRM, said in a statement. “Because of its continuing concerns about how the rule will affect employees and employers, SHRM supports the move by Congress to require the DOL to reconsider the rule.”
Republicans Sen. Tim Scott (S.C) and Rep. Tim Walberg (Mich.) introduced the opposition legislation Mar. 17 over concerns the rule change could hurt the very workers it’s meant to help. Their legislation would require the DOL to conduct a thorough economic analysis before releasing a final version of the rule.
“The Obama administration's decision to drastically redefine overtime will hurt our workforce and our employers. It will lead to reduced hours, confusion for job creators, and will limit growth opportunities for employees," Scott, a member of the Senate Labor Committee, said of the rule.
And while opposition is mounting, Proskauer’s Bloom says getting this changed through Congressional means will be very tricky, especially in this heated election climate.
“Personally, I think the more Congress pushes to take away what the administration has given, the more it becomes a political issue and the eventual Democratic candidate will seize upon that to amplify the platform of workers’ rights,” he says. “I hear a lot of talk, but come Dec. 1, I think these increases will go into effect.”
