Overtime Rule Released: How Organizations Can Prepare

May 24th, 2016

The new overtime rule is a reality, and come December 1, associations will need to be in compliance.

Last week, the White House published the final overtime rule, which will increase the minimum salary for exempt employees by more than 100 percent, and associations need to be ready for when it takes effect on December 1.

The rule states that all salaried employees guaranteed to make less than $47,476 annually, up from $23,600, will qualify for nonexempt status and will be eligible for overtime pay. The salary threshold will also be increased every three years beginning in January 2020.

In preparation, associations and “employers should get into the information-gathering mode,” said Julia Judish, special counsel with Pillsbury Winthrop Shaw Pittman LLP. To make the necessary changes, associations need to know just how much they’re going to be affected.

“The first and most critical thing that any employer needs to do is look at its currently exempt employees who are paid on a salaried basis and identify which of these employees aren’t guaranteed a salary—with the new regulations including at least quarterly nondiscretionary bonuses … above that line,” she said. “Those are the employees who are affected.”

Employees converting from exempt to nonexempt could just mean extra record-keeping. But for associations whose employees tend to work more than 40-hour weeks, there could be a large cost. Determining that cost ahead of time is key.

“Once the employer has identified which of its currently exempt employees would convert to nonexempt, the employer should start now requiring those employees to do the equivalent of clocking in and clocking out and track their average hours,” Judish said.

With the understanding of how much the rule will affect costs based on how much overtime soon-to-be nonexempt employees work, an association can start making adjustments to reduce those costs. Pillsbury compiled a list of ways to realistically do this, encouraging associations to make adjustments from increasing salaries and reorganizing workloads to shifting work weeks.

For the associations that will be affected “unless they have pots of money that they can use to start paying overtime or to increase salaries, for them it means a change in the way they operate,” Judish said.

She suggested starting by figuring out ways to cut down on those overtime hours. “Finding ways to trim overtime that results from inefficiencies or unnecessary or low-valued activity will be critical,” she explained. If many overtime hours are spent traveling, an association can ensure that the most efficient means of transport are used or decide that video or phone conferences can replace those face-to-face meetings.

Associations can also shift responsibilities from the nonexempt employees working overtime to exempt employees or nonexempt employees already working less than the 40-hour limit.

In some cases, such as staffing a conference registration desk, organizations can outsource or contract work. “It won’t be free to outsource it, but it will probably be a lot cheaper than paying overtime at the regular rate,” Judish said.

She emphasized that compliance with this rule will be especially important because these cases are easy to prove and will be highly attractive to attorneys. “There’s attorney’s fees, there’s liquidated damages, there’s individual liability for the decision-maker, and there’s the possibility of bringing them as a collective action … Even when the amount of wrongfully withheld pay is relatively small, there’s a lot of incentive for plaintiffs’ attorneys to take on clients and bring the claim.”

She continued that, “The costs of not complying with these new regulations are significantly worse than absorbing the additional costs and complying, making the changes, or in some respects, unfortunately, curtailing services.”

By Alex Beall, Assistant Editor of Associations Now. To read the article in the original form, click here.