Preparing Businesses for the New Overtime Pay Rule

Published on May 03, 2016

In 2015, the Department of Labor proposed a rule that could have a significant impact on the way employers compensate their employees.

This rule proposes changes that would expand the number of workers who are eligible for overtime pay: time and one-half their regular rate of pay for hours worked over 40 in a workweek. Most businesses will be required to comply with the changes once a final rule is released. 

Here are five workflow recommendations that may be critical to your company’s success and compliance with the new overtime pay regulations: 

1. Review and identify employees. Certain employees may not be impacted by the changes, but it will be important to review and confirm that employees who are currently classified as exempt from the overtime protections of the Fair Labor Standards Act meet the duties test for their exemption. Companies need to review their payroll and identify exempt employees with current salaries below or very close to the new proposed salary thresholds for executive, professional and administrative white collar exemptions. 

2. Determine which positions will transition to non-exempt status. Once you have confirmed the exempt status of employees most likely impacted by the proposed rule, you will need to decide, by position, how to proceed. Employers have two options: increase the salary level to maintain exempt status, or transition the position to non-exempt status. 

Employers who choose to transition positions to a non-exempt status will need to determine the basis for pay (hourly or salaried) and ensure they meet the minimum wage requirement for the number of hours the employee is expected to work. They should also consider whether overtime will be necessary and permitted. Consistency within each position can be crucial to mitigating exposure to discrimination lawsuits. 

3. Update timekeeping policies. Updating recordkeeping requirements and procedures can be critical to ensure full compliance with the Fair Labor Standards Act and applicable state wage and hour laws. If you have employees who will transition from exempt to non-exempt status, you will need to begin tracking all time worked for these employees, including overtime hours. You should review time-tracking methods and to evaluate the need for more automation. Should the new rule significantly impact the number of employees who need to track their hours worked, an alternative method of tracking, such as time and attendance software, may better suit your needs. 

Companies should also establish clear, written employee policies for recording time worked and overtime. These should include the procedure for recording time, what is considered time worked, how overtime is approved and by whom, and the potential disciplinary action for failing to follow the company’s policy. This information should be distributed to all employees or published in an employee handbook. 

4. Develop training procedures. Once recordkeeping and overtime policies have been updated, companies need to educate their staff on the company timekeeping and overtime approval procedures. This should be done for supervisors, managers and newly impacted employees, and consider a refresher for current non-exempt employees to ensure the policy is consistently applied. This training should be done as soon as possible, with supervisors performing regular audits of time records. 

5. Create and execute a communications plan. The new rule on overtime pay is expected to impact a significant number of businesses this year. To address the questions or concerns that arise, Companies should develop a communications plan for announcing the changes internally. The plan should introduce the procedures for reporting hours worked, as well as when and where you will communicate the change to supervisors, managers and employees. 

One recommendation is to speak first with managers and supervisors, and then to impacted employees individually. Or, discussing the changes in job classifications or time-tracking procedures with the entire staff might be more appropriate.

(Source: AccountingToday - Daily Edition - April 15, 2016)