As noted in this space in May, effective December 1, employees earning less than $47,476 per year may no longer be treated as exempt from overtime under the federal Fair Labor Standards Act. See “New Wage and Hour Requirements for Certain Employees of Manufacturers.” Those manufacturers which have not yet addressed the issue have a little over two months to do so.
To recap, generally speaking all employees must be paid at least minimum wage ($7.25 per hour under federal law) for all hours work and time-and-a-half for all hours worked in excess of 40 hours per week. An employee may be “exempt” from these requirements if she or he (a) is employed as a bona fide executive, administrative, or professional employee, (b) is paid on a “salary basis” and (c) receives a minimum annual salary of not less than $455 per week ($23,660 per year)(prior to 12/1/16). On December 1, the minimum salary will double to $913 per week ($47,476 per year). This change could dramatically increase the wages of first level managers, foremen and leads.
Economic Impact. Manufacturers must take a look at every employee paid on a salary basis and making less than $47,476 per year to assess the impact. For each employee, manufacturers must decide (1) whether to pay the employee hourly based on her or his hourly wage rate (calculated by dividing the numbers of hours worked per week by the weekly salary) and then overtime for all hours worked in excess of 40 hours per week based on that rate; (2) increase the employee’s weekly salary to not less than $913 per week, or (3) adjust the employee’s hourly rate downward and pay overtime for all hours worked in excess of 40 hours per week based on the new rate. (While adjusting the wage rate should reduce to almost zero the economic impact of the change, an employer will need to know the number of overtime hours the employee works each week. To calculate the “new rate,” take the number of overtime hours worked, multiply that by 1.5, add the product to 40 and then divide the previously paid weekly wage by this result).
Record Keeping Impact. Keep in mind that the new overtime requires not only impact how a manufacturer pays employees, but also what records the manufacturer must keep. Manufacturers must now keep detailed time records for previously-exempt employees who fall below the salary threshold. Among other things, manufacturers must keep a record of starting time, ending time, breaks of more than 10 minutes (if unpaid), total number of hours worked per day, and total number of hours worked per week. In addition, manufacturers will now have to pay these previously exempt employees for waiting time (if the employee cannot use time effectively for her or his own purposes), travel time (between employment sites), travel time away from employee’s “home community,” time spent in mandatory training, and potentially time spent checking e-mail, phone calls, text messaging. Manufacturers may need to consider its policies with respect to use of smart phones, especially outside of normal working hours.
Other Impact. Remember there could be other “unintended” impacts as a result of the new DOL rule. The increase in wages for lower level managers and supervisors could create or increase wage compression issues. The recent publicity surrounding the DOL’s regulation may also bring new attention from workers who may have reason to question their previous designation as an exempt employee. Finally, keep in mind that state law may require substantially higher wages than current requirements and employees get to take advantage of the more beneficial law.
Manufacturers should not wait until the last minute to address the dynamic situation created by the DOL’s new regulation.