Five Things IT Managers Must Know About New Overtime Rules
UPDATE: OVERTIME RULING PUT ON HOLD. On November 22nd, 2016 a Federal judge granted a preliminary injunction in a lawsuit challenging the DOL’s authority to raise the salary threshold. For now, businesses and employees are in a holding pattern. See the full SHRM article here
New overtime rules could affect entire IT teams from desktop support to C-suite executives, basically, every role at every salary level. For the first time since 1975, the U.S. Department of Labor (DOL) is increasing the salary threshold to reflect 21st century national salary percentile and inflation. Under new laws, any employee who makes up to $47,476 annually (or $913 weekly) will qualify for overtime. In addition, those who make $134,000 or more fall into the category of highly compensated employees (HCEs) and are exempt from overtime. Also new, the salary thresholds would be tied to an automatic-escalator which would update every three years (by 2020, the new threshold will adjust to $50,000). This chart from The HR Specialist provides a broad overview of what’s different. The rules take effect December 1, 2016.
Given the wide impact on employee status and salary across your organization, it’s crucial you understand what the new legislation entails and how you can respond.
1.) Prepare for Go-Live
Employers must first determine the following:
- which employees will be affected by the new rules,
- whether to give those employees a raise to maintain their exempt status,
- whether to keep salaries as they are and pay overtime rates for overtime hours worked,
- whether to revise written overtime policies, and
- what other business decisions are necessary to meet the organization’s financial and human capital needs.
2.) Bonuses and Incentive Pay
If part of your strategy involves moving employees into HCE status, you may use nondiscretionary bonuses** ( i.e. pre-determined commissions, incentive payments and merit-based pay) to satisfy up to 10% of the new standard salary level. In order to be compliant, HCEs must be paid on a quarterly basis and receive a minimum of $913 weekly on a salary or fee basis, which cannot be made up of nondiscretionary bonuses and incentive payments.
Use this formula to calculate the HCE limit
Formula:
Annual salary + 10% bonus = Highly compensated limit of $134,000
Real-World Example:
$122,000 + $12,000 bonus = $134,000 > This employee is a HCE and exempt from overtime pay
3.) The Impact on Telecommuting and Travel
New overtime rules means employers may need to update their telecommuting policy and arrangements. According to Gallup, telecommuters account for nearly 37% of the American workforce.* That number could be higher among IT professionals. A recent survey conducted by DICE.com suggests that 53% of IT professionals would take a paycut to work from home, making this workplace benefit increasingly desirable. If telecommuting is the future of work, employers must reign in on classifying work hours in light of overtime rules.
4.) Duties Test
No changes were made to the Duties Test. A staffing review of job duties is recommended anyway. Make sure you know what defines non-exempt, exempt and executive, administrative and professional (EAP) employees. For a complete summary of EAP exemptions see this fact sheet on Regulations Defining and Delimiting the Exemption for Executive, Administrative, and Professional Employees
5.) Change Is On The Horizon
The 4.2 million employees who stand to benefit from overtime only counts for 3% of the overall national workforce. The upcoming federal minimum wage increase to $15 an hour would affect nearly a third of the U.S. workforce.
Bottom line: Get ready for change.
The 2016 overtime pay adjustment is just one of the impactful labor laws on the horizon, you should also look out for
California Fair Pay Act — Cal. Lab. Code § 1197.5 significantly broadens the already existing law against gender pay inequality that has been on the books in California for almost 70 years. Among the recommendations, employers should require supervisors and managers, who make decisions about compensation, to document the reasons employees are paid what they are paid.
EEOC Fair Pay Data — A revision to Employer Information Report (EEO-1) that will collect pay data from federal contractors and other employers with more than 100 employees.
FEHC regarding Harassment, Discrimination and Retaliation —Requires covered California employers to develop and distribute anti-harassment and discrimination policies with certain required elements and create formal internal complaint processes to address employee concerns. Employers should promptly review their anti-harassment, discrimination, and retaliation policies for compliance with these new regulations.
Follow our updates to labor and wage legislation on our blog. What do you want to know about? Drop us a line.
*Data based on Gallup’s annual Work and Education poll conducted August 2015
** For clarification on the definition of discretionary bonus vs. nondiscretionary bonus, see this guideline from the Society for Human Resource Managers (SHRM)
All of the content on this page is for informational purposes only and should not be construed as legal advice. You should always contact your attorney to determine if this information, and your interpretation of it, is appropriate to your particular situation.