Happy New Year See You at the Pay Window or See You in Court
Come New Year's Day, some employees are getting a raise; some will start taking home overtime; and others will be taking the boss to court. Any way you slice this, employers will be footing the bill.
What's happened? On Tuesday, the U.S, Department of Labor (DOL) announced that its long-anticipated rule on overtime exemptions would go into effect on Jan. 1, 2020. There are no surprises here. The rule was proposed in final form back in March and it had been known for a long time before that how it was likely to turn out. All that was missing was the effective date, and now that has been announced.
The rule sets the minimum salary required for an employee to be eligible to be considered for the three most familiar of the so-called "white-collar" exemptions from the federal overtime law. The exemptions permit employers not to pay overtime to employees who perform certain types of duties.
Very generally speaking, those duties must involve a significant amount of discretion and independent judgment. For example, an employee who primarily performs office work directly related to the management of the business and who exercises discretion and independent judgment on significant matters may qualify for the "administrative exemption."
There's one more thing: The employee must be paid an annual salary of at least $23,660. That is, until Jan. 1, When the new rule kicks in, that $23,660 (or $455 per week) will jump to $35,568 (or $684), a 50% increase. This also applies to the professional and executive exemptions.
Employers who have been paying attention have already looked at their pay schedules and have figured out a couple of things. First, do they have any exempt employees who are making less than $684 a week and how close are they to that new minimum salary? Second, are those employees working more than 40 hours a week and, if so, how much?
The point is to figure out whether it would cost more to give an employee a raise in salary to get her over the minimum and keep the exemption or to give up on the exemption and just pay her overtime when she works it.
If you know the numbers, it's a pretty easy calculation. The problem is, many employers—or even the employees themselves—don't have any idea how many hours they work. They haven't been paid overtime, so nobody has tracked their time. Managers in this situation are going to have to make their best estimate based on what supervisors can tell them, what the employees say, and on their own observations. Maybe they can do a study between now and Jan. 1, but it might be affected by the knowledge of the coming change and will only measure workloads during this season, which might not be typical, It may be the best they can do and it's better than guessing.
When doing these calculations, employers should remember to take into account the impact of raises or overtime on benefits, some of which can be based on the amount of pay.
Also, there's going to be some education required, Neither these employees nor their supervisors—nor the payroll department, for that matter—are used to tracking their time or trying to minimize overtime. They've just been working until the job is done and maybe coming in a little late the next day to make up for it. That's not going to cut it when they're hourly, overtime-earning employees.
And those employers who haven't been paying attention? Well, out of the goodness of the Department of Labor's heart, they have just over three months to get all of this figured out. The department estimates the rule change will make 1.3 million employees newly eligible for overtime, so get started.
There is a third group of employers, the ones who haven't been paying attention, aren't paying attention and still will not be paying attention on or after Jan, 1. They will neither raise the exempt employees' salaries nor begin to pay them overtime.
What they will do, eventually, is receive a letter from an attorney that says pay up or I'll sue. By the way, that payday will include double back pay and attorney fees.
The new rule does have a few other tweaks. It raises the minimum salary for the "highly compensated" exemption from $100,000 to $107,432. It also allows certain bonuses and commissions to be counted toward the minimum salary levels, where before they could not be counted.
If you're the employer who has a plan, congratulations. It's just about time to pull the trigger. If you're the employer who just woke up to the new rule, better late than never: time to get ready.
If you're the employer who has been and remains clueless—see you in court.
David C. Miller is a shareholder in the Miami offices of Bryant Miller Olive. He is board-certified in labor and employment law by the Florida gar and has represented management exclusively in South Florida for more than 20 years. He is the chair of the city, county, and local government law section of the Florida Bar. His email address is dmillerObmalaw.com.