The Department of Labor (DOL) recently proposed revisions to its regulations that will raise the threshold at which certain employees automatically qualify for overtime eligibility under the Fair Labor Standards Act. These revisions could impact how you manage your staffing decisions in the near future.
Currently, the only employees who automatically qualify for overtime are those earning less than $455 a week (or $23,660 per year). Employees who earn more can receive overtime only if they do not fall into one of the exempt category classifications.
These exempt categories are defined by a set of job requirements and conditions (generally referred to as the “duties test”) that, for example, require the employee to be skilled and exercise independent judgment, or be a manager with a department and employees to supervise.
Under the proposed rule, all employees regardless of duties are eligible for overtime if they earn $50,440 or less. This more than doubles the minimum salary threshold from $455 to $970 a week.
The DOL would also like to index the minimum salary threshold to automatically increase this amount over time, either keeping the threshold chained to a nationwide percentile of earnings or tying it to the Consumer Price Index. At this point, though, there is no indication that there will be any changes to the current duties tests.
The proposed regulations are anticipated to take effect early next year. So, what should your credit union do now to prepare?
Initially, you should review your workforce to see who may be affected by the proposed changes. Examine all employees you currently classify as exempt from overtime.
Review salary levels and compare them with the proposed rule to ensure they are above the minimum threshold, plan for automatic increases, and re-examine job duties.
Once this review is complete, and you have identified how many and which employees are affected, consider the following options:
• Increase the affected employee’s salary above the minimum threshold. If the employee earns near, but less than, the new threshold, a raise may save the credit union in administrative and overtime costs.
At this time there is no indication the DOL will be amending the duties tests. But it may limit the amount of time an exempt employee may perform nonexempt work.
• Convert employees from exempt to nonexempt and pay overtime. Remember, these reclassified nonexempt employees would be compensated at time and a half when they work more than 40 hours.
To avoid this, reduce these workers’ hours to no more than 40 hours per week. This may require hiring new part-time workers to cover the extra hours these individuals used to work.
• Adopt a “no overtime” policy to limit overtime. This may help avoid overtime, but remember if an employee works more than 40 hours, he/she must be paid for it.
However, a “no overtime” policy offers a method to discipline any repeat violators.
• Implement an email policy that limits hourly workers’ access to their work email account or bans hourly staff from checking it during off hours.
Keep in mind, some credit unions offer less generous benefits to nonexempt employees than their exempt counterparts.
Investigate the impact of reclassifying on your benefits packages and consider whether reclassifying employees as nonexempt changes their health, vacation, or sick leave benefits, too.
Take these steps today to help your credit union properly plan and prepare so you’re not caught off guard when the regulations take effect early next year.