By DENNIS GRUBAUGH
Unless Congress acts in a hurry, new overtime rules viewed as burdensome and costly to business will take effect Dec. 1, leaving some employers scrambling to comply.
The new regulations will require employers to pay overtime to most workers who make less than $47,476 per year when they work more than 40 hours a week, more than double the current threshold of $23,660. That means millions more workers would qualify for overtime. Those not subject to overtime are classified as exempt.
The House has passed a measure that would delay the U.S. Department of Labor’s increase of the minimum exempt salary amount for six months, but a similar measure introduced in the U.S. Senate is stuck in committee, and observers see little chance of passage before the rule is set to take effect.
Despite the dramatic increase, a recent survey by human resources company Paychex Inc. found that 49 percent of business owners polled were unaware of the pending change, first announced back in May.
“Lawmakers from both parties recognize that the administration’s radical changes to overtime rules are too much, too fast,” National Retail Federation Senior Vice President for Government Relations David French said recently. “With the Dec. 1 compliance deadline looming, the window for congressional action is quickly closing. Pushing pause on implementing these one-size-fits-all regulations would provide welcome breathing room for retailers large and small struggling to comply with the changes during the holidays, their busiest time of the year.”
The Regulatory Relief for Small Businesses, Schools, and Nonprofits Act would give employers an extra six months to come into compliance by pushing the deadline to June 1, 2017.
Research conducted by the National Retail Federation suggests the regulations will force employers to limit hours or cut base pay in order to make up for added payroll costs, leaving most workers with no increase in take-home pay despite added administrative costs. A separate survey found that the majority of retail managers and assistant managers — positions that the regulations are supposed to help — oppose the plan.
Similar reactions are being voiced by a number of industries.
“It’s just days away from becoming a reality,” said Thomas E. Berry Jr., a principal in the law firm of Jackson Lewis P.C., who has conducted multiple presentations on the rules in recent weeks in Metro East.
The audience at each of his presentations had plenty of questions.
The change to the overtime rules is the first since 2004. The last increase prior to that was in 1975, Berry said.
In 2004, the overtime threshold was increased from $150 a week to $455 a week. Now, it’s going to $913 a week ($47,476 per year), a figure that represents the 40th percentile of what all salaried workers on average make in the lowest-paid sector of the U.S., the southeastern region.
The Department of Labor also wants to implement an automatic step-up plan that would allow the overtime threshold to be increased every three years. The next increase would be Jan. 1, 2020, with estimates of $51,168 for standard salary.
To classify an employee as exempt from overtime, employers must be able to prove three points:
- The worker must be paid on a regular salary basis, regardless of how many hours are worked during the week or the quality of their work.
- The worker’s salary must be of at least a minimum amount, specified in regulations.
- The worker’s primary duties must involve executive, administrative or professional responsibilities defined by regulation.
Employees entitled to overtime pay under the Fair Labor Standards Act are called nonexempt employees. Employers must pay them one-and-a-half times their regular rate of pay when they work more than 40 hours in a week.
Starting Dec. 1, in order to avoid paying overtime, companies must pay their salaried staff at least $47,476 per year.
Employees who work off commissions and incentives can be considered exempt from overtime as long as the total of their compensation equals at least $47,476, with commissions and incentives counting for no more than 10 percent of that total. For the commissions or incentive compensation to count as part of the minimum salary, it must be paid at least on a quarterly basis during the year. If an employee did not earn a sufficient commission or incentive compensation during the quarter, the employer must pay the difference or the employer will lose the overtime exemption for that quarter.
The Department of Labor’s final rule does not affect other exemptions. There is no change to the outside sales exemption and it does not affect professional exemption as it relates to teachers, doctors and lawyers.
The rules will be built into the Fair Labor Standards Act, which dates to the 1930s and provides for a minimum wage and overtime protections, subject to exemptions. More than 90 percent of American workers are covered by the act.
Lawsuits challenging wage and hour issues have skyrocketed in recent years. Many lawyers will “troll” the litigation waters, looking for clients with a beef with their company. And when one worker becomes involved the entire list of employees can be drawn in, making it imperative that companies stay ahead of the rules of compliance, Berry said.
Some industries are targeted by the DOL more than others because they are more likely to be violators of the rules - agriculture, daycare, fast food, manufacturing, hotel/motel, janitorial services and temporary employment services.
“From my experience the Department of Labor is more difficult to deal with than either the National Labor Relations Board or the EEOC. And they are candid. They are not making any secret of where they are targeting their emphasis. They are constantly posting press releases about wage-hour settlements,” Berry said.
Although six months have passed since the Department of Labor issued its final rules, many employers simply haven’t become educated. In terms of strategy to address the change, Berry said it’s best for employers to immediately begin identifying employees who might be affected.
Many employers will have to consider whether it’s efficient to increase salaries or shift duties to see if that will put them on better footing in terms of overtime concerns.
Some incentive and compensation plans may have to be watered down to offset the increases.
Then, there is also the problem of “salary compression” — the effect on other salaries when the pay of nonexempt employees is adjusted.
Berry said employers will likely have to ask more questions about work being done outside the office. They may face loss of flexibility in granting time off, and they might face backlash of morale if employees are forced to use timeclocks.
Some employers may opt to reduce hours to avoid overtime and shift exempt tasks to other exempt workers.
Some 21 states filed a joint suit on Sept. 21 in federal court in Texas, but the likelihood of a court issuing an enjoining rule on the overtime mandate issue is not likely before Dec. 1, Berry said.
The U.S. Chamber of Commerce and more than 50 business organizations also have filed suit - in the same Texas court. While both the states and the chamber have requested an “emergency” injunction, the hearing on this motion will not be occur before the Texas court until Nov. 16. Berry called that a “Hail Mary pass” with little chance of a reception.
RPI Therapy offering services in Metro East
Rehabilitation Professionals Inc. has reached agreements with two Metro East programs to provide rehabilitation services to clients.
One is with Senior Services Plus in Alton, which will allow RPI Therapy Services to provide physical, occupational and speech therapy on site.
The second is for services through St. John’s Community Care, which offers adult day programs at locations in Collinsville and Edwardsville.
“It is our hope it will serve as a convenient way for a family caregiver to address the rehabilitation needs of their aging loved ones without additional trips to another location to receive care,” said Nancy Berry, executive director for St. John’s.
“We are excited to have RPI join our team,” said SSP Wellness Coordinator Lucas Hale. “Their values mirror SSP’s very closely by wanting to provide affordable wellness to older adults, so it’s a great fit.”
RPI is a multifaceted practice established in 1997 by physical therapists Jonty Felsher and Jonathan Gordon. It provides services to Missouri and Illinois senior retirement communities, including independent living, assisted living, memory care and private skilled care centers.
Offices are located in St. Louis, O’Fallon, Ill., and Chicago.
RPI will bill Medicare and most other insurances for its services, and a physician’s order is required.
For more information go to www.rpistl.com or call (314) 644-1978.