What Georgia Employers Should Know About New Overtime Rule

Lee Schreter | Special to the Daily Report

On Dec. 1, 2016, a Final Rule will take effect that the U.S. Department of Labor (DOL) estimates will "extend overtime protections to 4.2 million workers within the first year of its implementation."

The rule extends overtime protections to additional workers by more than doubling the minimum salary a worker must receive to be considered exempt from overtime under the Fair Labor Standards Act (FLSA)—the federal law that governs the payment of minimum wage and overtime. The minimum salary will rise from $455 a week ($23,660 a year) to $913 a week ($47,476 a year).

By the DOL's own estimates, Georgia employers will be particularly hard hit by the new rule. Of the more than 4 million workers estimated to become eligible for overtime if their weekly earnings are not increased, 3.7 percent are located in Georgia (which makes it the seventh-most affected state in the country).

However, it is likely the DOL has understated the number of employers and workers who will be affected by the Final Rule. The DOL's estimate includes only those workers who will become eligible to receive overtime because their employers do not increase their salaries to the new minimum, and are therefore reclassified as nonexempt. The estimate does not include those workers whose salaries are increased to meet the new salary level to maintain their current exempt status, or the ripple effect such increases will have on other exempt employees at higher salary levels. As a result, the adverse economic impact of the Final Rule is likely far greater than the DOL's estimate.

Key Regulatory Changes

The Final Rule makes four key changes: It (1) increases the standard salary level for exempt executive, administrative and professional employees from $455 to $913 per week; (2) increases the salary level for certain highly compensated employees from $100,000 to $134,404 per year; (3) provides for automatic updates to standard and highly compensated salary levels every three years beginning Jan. 1, 2020; and (4) permits employers to credit up to 10 percent of certain nondiscretionary bonuses and incentive payments (including commissions) toward the standard salary level, provided such payments are made on a quarterly or more frequent basis.

What Do These Changes Mean

for Georgia Businesses?

The Final Rule will likely affect many Georgia employers, so the key to complying with the new requirements will be to understand what has changed, identify those workers who fall below the new salary levels, and determine how to alter affected workers' compensation packages.

Fortunately, employers have a range of options. For example, an employer can convert an affected employee to overtime-eligible but limit the number of hours the employee works so no overtime is incurred. An employer could also raise the worker's salary to the new minimum.

But a word of warning: to be properly considered exempt from overtime, an employer must satisfy all of the exemption requirements, not just the minimum salary. If an employee is paid the minimum salary level but does not perform the required duties to be exempt, the employee must receive overtime.

The DOL has also made clear that an employer can adjust a newly nonexempt employee's hourly rate of pay and overtime so that the total amount to be paid remains largely the same, assuming the employee's hours are constant.

Due to the technical nature of these regulations, we recommend employers consult with legal counsel (in-house counsel or outside counsel) to evaluate the impact of the Final Rule. Legal counsel can work together with human resources, compensation and benefits personnel to gather the necessary information to evaluate the effect of the Final Rule and coordinate the necessary change with management.

At a minimum, we recommend employers consider the following steps:

• Identify any exempt employees whose current salaries fall below $913 per week ($47,476 per year).

• Determine whether any affected employees are eligible to receive nondiscretionary bonuses or incentive compensation (including commissions) that are paid on a quarterly or more frequent basis.

• Determine whether 10 percent of such amounts paid on a quarterly or more frequent basis would allow affected employees' total compensation to meet the new standard salary level.

• Determine whether nondiscretionary bonus or incentive compensation plans can be restructured to allow for the crediting of these amounts against the new minimum salary amounts.

• Conduct an impact analysis to determine whether raising an exempt employee's salary to the new minimum or converting the individual to overtime-eligible is the best choice in terms of your company objectives, employee morale, payroll expenditures and ongoing management considerations.

• Develop a work plan for implementing changes by the Dec. 1 deadline.

• Develop a plan for communicating changes to affected employees and their managers. We recommend these changes be announced prospectively and well in advance of the Dec. 1, 2016, deadline.

• Utilize public resources to assist in your compliance efforts. Information regarding the Final Rule is available from a variety of resources, including the DOL (www.dol.gov/whd/overtime/final2016). These materials are free to employers and employees.

Other organizations, including the Society of Human Resources, the American Payroll Association and the U.S. Chamber of Commerce offer similar compliance assistance. Our firm has also developed a variety of resources for employers. Information regarding these resources can be found at Littler.com.

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