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Last month, the Department of Labor released its final rules for overtime pay, with changes the department says will affect 4.2 million workers. The new rule says anyone who makes less than $47,476 per year must receive time-and-a-half pay for hours worked beyond 40 hours a week. That's roughly double the current threshold of $23,660.
To arrive at this amount, the DOL set the salary threshold at the 40th percentile of full-time salaried workers in the lowest income Census region (currently the South).
In addition, the salary threshold will automatically update every three years. Based on DOL projections of wage growth, the threshold is expected to rise to more than $51,000 with the first update on Jan. 1, 2020.
Another change: The “highly compensated employee” threshold has increased from $100,000 to $134,004. According to the White House fact sheet, “This upper threshold was designed to ease the burden on employers in identifying overtime eligible employees since it is more likely that workers earning above this high salary level perform the types of job duties that would exempt them from overtime requirements.”
The HCE threshold will also update every three years. It will increase to the 90th percentile of full-time salaried workers nationally, estimated to be $147,524 in 2020. The DOL will post new salary levels 150 days in advance of their effective date, beginning Aug. 1, 2019.
Also new: For the first time, employers can count bonuses, incentives and commissions for non-highly compensated employees toward as much as 10 percent of the salary threshold, provided these payments are made on at least a quarterly basis.
There are no changes to the “duties test.” Workers earning more than the new salary threshold of $47,476 are still subject to the duties test to determine overtime eligibility.
“Credit unions around the nation will be facing some difficult choices in the months ahead when it comes to employees who are currently classified as exempt but are paid less than $913 per week,” says Michael Cardman, legal editor at XpertHR, New Providence, N.J.
“The simplest option is to increase these employees’ salaries, allowing them to remain exempt – but of course that could result in significant increases in labor costs,” he says.
“Another option would be to reclassify these employees as nonexempt and then pay them overtime when they work more than 40 hours in a workweek. This would require the credit union to diligently track the hours these employees work – and to have a thorough understanding of what counts as working hours.
“A third option would be to reclassify these employees as nonexempt and then adopt a policy forbidding them from working overtime,” Cardman explains. “Credit unions that take this route should be sure they understand that they would still have to pay the employees overtime if they did work more than 40 hours a week in violation of this policy; however, these employees could then be subject to internal disciplinary procedures up to and including termination.
“A final option would be to reduce the amount of pay allocated to base salary and add pay to account for overtime for hours worked over 40 in the workweek, to hold total weekly pay constant. A credit union that did so would have to be sure that the employees still earn at least the applicable hourly minimum wage, which could prove tricky in states and cities where the minimum wage will reach as high as $15 in the years ahead.”
Andrew Volin, a partner at the national law firm Sherman & Howard and an expert on wage and hours/compensation, has looked at the rule closely and what it means for employees.
"A natural reaction is “hooray, the government just gave us a raise,” but that might not turn out to be true.
Some current exempt workers will see their status shift to hourly, and they will have to keep track of their hours worked on a daily and weekly basis,” says Volin, who advises and defends private sector employers and their management in disputes involving employment discrimination, wrongful discharge, and wage and hour law.
"All companies realize that many more workers will have to track their time worked than before, and that raises the possibility of claims by workers that they are not being paid for all the time worked,” he adds. “This may lead to more wage hour claims by workers, which are a major concern for employers because of double damages provisions and attorney’s fees awards.
"Keeping track of hours worked is sometimes harder than it might appear. Punching a time clock is not required, yet employers are required to keep accurate records. How do you track the time required to read and respond to emails sent at all hours, or to answer calls outside of normal work hours? The answer, it appears, is very carefully, or you should expect to be sued," Volin says.
Theresa Witham is a CUES senior editor.
