Here we go again. A new overtime rule. Didn’t we just do this? Yes… and no.
Yes, in 2016 employers were preparing for a significant increase in the overtime threshold. No, because in August 2017 the courts permanently blocked the implementation of the mandated overtime threshold.
Fast forward to September 24, 2019 when the Department of Labor revisited the overtime rule and increased the threshold an employee must make to qualify for exemption from overtime. In the current political environment this change is likely to go uncontested so Resourceful is preparing our clients.
“Effective January 1, 2020, any employee making less than $35,568 is eligible for overtime pay.”
As the leader of the business you may be thinking, “this is simple – hourly employees are paid for overtime.” And there is truth to this. Unfortunately, the government has made things more complicated than simply whether you pay a person hourly. In addition to the compensation threshold, there are two additional steps to determining if a position is exempt from overtime – Exemption Applicability and Job Analysis. Reasoning using job titles or the fact someone is paid a salary are insufficient to determine exempt status.
There are good reasons why you should take notice of the new rule and use this as an opportunity to strengthen your business practices.
With the change in the threshold, you may have employees who previously were not receiving overtime that are now eligible. As you plan your 2020 budget, you need to be aware of where the new overtime expenses will occur and how that impacts the bottom line.
This is your opportunity to evaluate overtime activity for the whole company and create a plan to get spending under control. Overtime is an expensive way to run a business. Evaluate how much overtime you have been paying and what teams have the highest levels. Has it been sporadic or are you consistently paying the same people overtime? It could be more cost advantageous to hire an additional person than continuing to pay time and a half.
Has overtime become the cultural norm rather than being a rare occurrence needed to hit a specific business milestone? With potentially more team members eligible for overtime, it will be important to make this assessment, or you could increase operating expenses without increased output. Reviewing job duties and assessing if expectations are aligned with a standard work week will provide insights into whether you need to hire more team members or work to shift the culture away from overtime all-the-time.
This new rule gives you the opportunity to evaluate what is happening within the company and how much it is costing you. You can review job descriptions and expectations of employees for alignment. Are they the right activities to move the business forward? Doing a comprehensive review of job duties and classifications will provide you insights on whether you need to change the focus of employee’s roles or hire more people to avoid burning the team out.
Every organization and every leader has a different risk tolerance, but keep in mind that penalties are high for mis-classifying employees. The risk of paying back wages can be high if you have employees regularly putting in long hours and you are not certain of their exempt/non-exempt status. Courts have the ability to look back multiple years to determine the payout to employees who have been misclassified and are owed back wages. And if you think you are okay because you’ve stressed that no one is to work overtime, take some time to assess if you have employees working off the clock. That price tag gets even larger when you are required to pay for time worked that you were not aware of.
Use the change in the rules as an incentive to review your existing structures, job descriptions, team member expectations, and pay levels. As your organization continues to grow and evolve you need to continually review your employees’ tasks and responsibilities to assess if that changes how their compensation should be structured, including the exemption status.
It is both an art and science to classify positions as non-exempt or exempt. The Resourceful team has extensive experience working through this process and we appreciate the need to navigate the gray areas. We are here to help and when necessary, partner with your employment attorney on any unclear positions. This is a great opportunity to take advantage of the new rule to strengthen your entire business. Looking at the financial, team and risk implications as the new rule goes into effect will leave you better equipped to move your mission forward.