In May 2016, the Department of Labor (DOL) published the final rule updating overtime regulations, which extends overtime pay protections to over 4 million workers. The final rule has a primary focus of updating salary and compensation levels required for certain employees to be exempt as well as ensuring that the Fair Labor Standards Act (FSLA) overtime provisions are fully implemented. The effect to resort operations and budgeting could be substantial, and proper planning will help to endure both compliance with the laws and minimize unnecessary budgetary pressures.
DOL Overtime Rule Provisions
The new rule increases the minimum salary threshold from $455 to $913 per week, which equates to $23,660 to $47,476 per annum (full year employee). This is a 101% increase in wages for employees falling in to this category. Salaried employees that fall below the salary threshold will be entitled to time-and-a-half wages for each hour they work beyond 40 per week. Another update to the rule includes the total annual compensation requirement for those considered to be highly compensated employees are to increase from $100,000 to $134,004 per annum (the white collar exemption). The rule takes effect December 1, 2016; therefore now is the time to make determinations of which employees to reclassify as nonexempt and implement the changes prior to the rule taking effect.
Who Does The Rule Apply To?
The updated rule applies, but is not limited to, executive, administrative, professional, outside sales and remote employees under FSLA. An estimated additional 4.2 million employees that work within these job classifications will be
covered under the rule. The updates to the rule aim to increase pay, thereby ensuring every worker is compensated fairly for their work. Examples of employees that are ‘generally’ exempt from overtime are as follows (however employers should apply the exemption tests that are covered below)
- Highly compensated employees (white collar exemption)
- Outside sales employees
- Commissioned sales employees in retail
- Computer professionals
- Drivers, loaders, and mechanics
- Farm workers
- Seasonal and recreational establishments (does not exceed 7 months of operations)
How can I determine who is exempt in my business?
Three tests must be met in order to claim a white collar exemption for an employee:
- Salary basis test: employee must be paid on a salary basis rather than on an hourly basis.
- Standard salary level test: employee salary must meet the minimum salary level which is being increased to $913/week or $47,476/ annually.
- Standard Duties test: employee’s primary job duty must involve the work associated with exempt executive, administrative, or professional employees.
Who falls under exempt professional, administrative, or executive employees?
For all three of these categories, the employee must meet the standard salary level test, i.e. they must receive at least $913 a week (the equivalent of $47,476 a year) on a salary or fee basis. Additionally, each category has a standard duties test. For a professional exemption, the employee must primarily perform work that either requires a dvanced knowledge in a field of science of learning, usually obtained through a degree, or that requires invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor. For the administrative exemption, the employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers. Additionally, the employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of significance. For the executive exemption, the employee must have the primary duty of managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise. The employee must direct the work of at least two other full-time employees or their equivalent (for example, one full-time and two half-time employees). The employee must have the authority to hire or fire other employees.
How can I protect my resort from increased overtime expenses and from potential DOL violations and IRS audits?
With very little time until the rule takes effect on December 1, 2016, resorts need to start taking the proper procedures now to determine which employees are eligible for overtime and how to classify some of those employees who are exempt. Here are some procedures to implement:
- Track actual hours worked for all employees and review weekly. Employees must clock in and out and lunch breaks must be accounted for. This should be an automated procedure rather than a manual procedure to ensure accuracy of time reporting.
- After tracking the actual hours worked for the week, determine which employees are eligible for overtime and which are exempt (under the new rules).
- Analyze employees’ time that are eligible for overtime, consider those employees that have salaries close to the new standard salary level test ($913/week or $47,476/year) and determine whether their salary should be increased to qualify for the exemption. Consider employees that earn salaries that could be reduced to hourly wages below $913/week.
- Employers must vigilantly monitor non-exempt employees’ hours and implement a written policy to approve actual hours exceeding 40 per week. Some ways to minimize the risk of overtime occurring are to disable remote access from home or disable smart phone accessibility.
Additionally, written approval should be given to work from home, through lunch or on weekends, stay late to catch up on work or work in excess of 40 hours per week.
- Develop communication with your employees to let them know you will be tracking time and that their employment status may change.
A properly executed and automated time-keeping mechanism is key to prove there is time-keeping in existence. Federal law requires that all time be recorded for non-exempt employees. Ensuring your business has written policies in effect and monitoring time weekly is the best way to minimize exposure from regulatory agencies.
The key to success is in the planning and implementation, so be prepared. The new rules will definitely have an impact on a resort’s business decisions around hiring, expansion, offering of benefits and flexible work arrangements. There are a wide range of options for responding to the changes and employers can choose one option or a combination of options that works best for their resort. One option is that resorts may choose to raise the salaries of employees to at or above the salary level to maintain their exempt status, if those employees meet the duties. This option works for employees who have salaries close to the new salary level and regularly work overtime.
A second choice is to continue to pay their newly overtime-eligible employees the same salary, and pay them overtime whenever they work more than 40 hours in a week. This approach works for employees who work 40 hours or fewer in a typical workweek, but have occasional spikes that require overtime for which employers can plan and budget the extra pay during those periods. Remember that there is no requirement to convert employees from salaried to hourly in order to calculate their overtime pay! A third option is to ensure that workload distribution, time and staffing levels are all managed appropriately for their white-collar workers who earn below the salary threshold.
Many states and businesses have filed multiple lawsuits seeking to overturn the regulations. It is unknown what the result of the lawsuits may bring in the way of changes to the rule as it is currently written, if any, and what changes the new presidential administration may have. What we do know is that no changes are likely to happen before the effective date of December 1, 2016, so employers need to be prepared to comply.