New overtime rules mean big changes for employers.
New overtime rules mean big changes for employers.
New US Department of Labor rules on overtime pay will push local employers to reevaluate exempt and non-exempt job salaries to minimize costs and potential pitfalls in employee relationships, according to consulting and accounting firms working closely with companies here. Central Ohio's thriving nonprofit, service and warehouse-distribution organizations are among those likely to face new costs and morale issues as a result.
The new rules, effective Dec. 1, 2016, don't change overtime pay-that's still 1.5 times the rate of pay for work over 40 hours in a single week. But they change who is eligible for overtime. The new rules effectively double the salary levels of workers eligible for overtime, from $23,660 per year today to $47,476 per year, or $913 per week, beginning Dec. 1.
The DOL's final overtime rule, covering most employees protected by the Fair Labor Standards Act, makes an additional 4.2 million workers eligible for overtime nationwide, including 133,756 in Ohio, according to a White House announcement.
But the impact could be greater. The Economic Policy Institute, an advocate for low- and middle-income workers, concluded about 21 percent of Ohio's salaried workers will be affected by the new overtime rule, based on its own estimate of about 12.5 million people affected nationwide.
In Columbus, that covers a lot of ground. The median annual wage of all metropolitan Columbus employees is $36,720, and the average hourly worker would make $47,424 at 40 hours per week, 52 weeks a year. Both are under the new exempt salary set-point.
In many respects, doubling the salary for overtime-eligible employees was so drastic because it had been neglected for so long. "The white collar exemption was originally meant for highly-paid workers who had better benefits, job security and opportunities for advancement," says a DOL overview. In the 1970s, overtime applied to 62 percent of employees; it applies to only seven percent today. The 2004 adjustment in the exempt salary level didn't budge much, eroding overtime's protection for lower-income workers.
"This rule change should help, especially with the added change that it will be reevaluated every three years and updated with changes in salaries and the economy," says Amy Marcum, senior human resource specialist for Insperity, a national provider of human resources services.
"The wage level for non-exempt was originally going to be above $50,000, but they scaled it back," says Mike Stevenson, managing partner of Clarus Partners in Dublin. "Part of the motivation is it hadn't changed much for 40 years, and partly it helps address wage gaps, particularly for females in the labor force who still make less than men do." About 56 percent of the workers newly eligible for overtime are women, according to DOL.
Still, representatives of the Society for Human Resources Management testified in Congress that doubling the wage threshold for overtime-eligible employees may have gone "too far, too fast." The new rules will hit small businesses and nonprofits with fewer resources and not much time to respond, they say.
Many Congressional Republicans agree, including Ohio Representatives Steve Stivers and Patrick Tiberi and seven others who have co-sponsored a bill to halt implementation of the overtime rules; a similar Senate bill has been co-sponsored by 45 Republicans.
Experts say the new rules may especially impact central Ohio's nonprofits, seasonal distribution and warehouse operations and bank branches staffed by low-salaried supervisors.
"For places like Abercrombie, the restaurant groups or seasonal people and those distribution, warehouse and retail companies near the airport, everyone who delivers the merchandise at Christmas, they will be the ones affected the most," says Stevenson, a former VP of finance and treasurer at Abercrombie & Fitch. His firm, Clarus Partners, also employs seasonal workers. "We hire lots of people between February and April and they work on a lot of tax returns during those two weeks between April 1 and 15," he says. "I can guarantee you we're not going to send someone home. We need them."
"The segment that's really concerned and up in arms is nonprofits," says Tom Hurley, a principal at Findley Davies who specializes in compensation issues. "They have low budgets, run pretty lean and typically have a work force that views the job as not just the money they take home, but satisfying their mission," Hurley says. There is more flexibility for nonprofit groups, but many professional, creative, executive or managerial jobs once considered exempt could be eligible for overtime under the new rules.
"In a nonprofit, you have a lot of events or community activities that require staff to work in evenings or on weekends. Your board meets at 6 p.m. after the staff has already worked eight hours," Stevenson says.
"I have a nonprofit client, where the service providers are all in this category of the high $30s and low- to mid-$40s in salaries, and some are working 45-50 hours a week," says Brian Ravencraft, a CPA and principal with Columbus-based accounting firm Holbrook Manter. "They're putting a plan in place to say you must work only 40 hours a week. They're saying, with your caseloads we want you to help people as much as you can, but we really have to limit you to 40 hours. We may have to adjust the workload in some instances."
Managing the new overtime rules
The changing DOL rules lead first to new hourly timekeeping policies, most experts say.
• Newly non-exempt employees will now have to track their hours.
• Resulting policies may affect some who traditionally had flexible hours or worked at home.
• Some employers will have to expand timekeeping computer systems and launch new training.
• Supervisors will now have to monitor time reports for newly non-exempt staff.
At the same time, employers are listing employees receiving between $23,000 and $48,000 a year and calculating the budget impact of the new rules.
"Our role is to help with the math and the analysis of the cost-benefits in the equation," says Robert Shenton, managing partner of accounting and consulting firm Plante Moran. "Beyond the math is the cultural impact. Let's say I'm hired in professional services as an engineer, and now I'm no longer salaried, I'm hourly. Shouldn't I be paid as a professional, which is normally as a salary?"
Companies need to carefully avoid calling some employees "professional" and others "non-professional," Shenton says, but the distinction between exempt and non-exempt employees is inescapable. "If you have hourly employees, you don't have a compensation system that rewards high-performers. If you have a salaried position, you do what it takes to get the job done and there's more of a professional analysis (on compensation)."
As with most similar changes, managing overtime and the status of non-exempt employees has its legal pitfalls. Most DOL wage and hour audits occur in low-wage retail environments and enforcement action usually follows tips and whistleblowing by affected employees.
Who's exempt and who is not?
In general, jobs with duties that require judgment and discretion can be considered exempt, as well as employees with well-defined professional, administrative and executive duties. But if their salaries don't exceed $47,476, workers can get time and a half for work over 40 hours.
Computer professionals must earn at least $913 per week-or $27.63 an hour if they are paid on an hourly basis-to be considered exempt from overtime.
Teachers are exempt as "learned professionals," but many daycare employees are non-exempt.
Artists and creative professionals are exempt, including journalists, but if their work is routine re-publishing of existing public information that could make them non-exempt.
An engineer doing real engineering work is professional and exempt, but one working as a technician is non-exempt.
An accountant doing bookkeeping will likely be non-exempt, according to Workplace Fairness, a nonprofit promoting fair business and pay practices.
Mike Mahoney is a freelance writer.