FLSA Guru Tammy McCutchen Discusses How to Get Ready for New Overtime Regulations

Big changes to the federal overtime rules are in the works.

In a recent webinar hosted by XpertHR, one of the leading authorities on the Fair Labor Standards Act offered some advice to help HR prepare for what’s in store.

Tammy McCutchen, a former administrator of the US Department of Labor’s Wage and Hour Division and now a principal in Littler Mendelson’s Washington, D.C. office, made the following recommendations.

1. Conduct a cost assessment, now.

The DOL is expected to raise the minimum salary for overtime-exempt employees to $50,440 per year and then raise the minimum salary once every year based on a method yet to be determined.

McCutchen said employers should weigh the cost of giving raises to employees who are currently exempt but make less than $50,440 per year against the cost of reclassifying those employees as nonexempt and paying them overtime, given the number of hours those employees are currently working.

About four in 10 employers are going to need to crunch those numbers for at least a third of their exempt employees, according to a poll of the nearly 1,000 HR professionals who attended the webinar.

Percentage_earning_less_than_50K

HR should start this process as soon as possible, McCutchen said, because “My experience has been that it takes six months to do reclassifications right, and you might not have six months [before the new salary level takes effect] when DOL publishes the final rule.”

2. Consider whether bonuses can count toward the minimum salary level.

The DOL may allow employers to count nondiscretionary bonuses and maybe even commissions to satisfy up to 10% of the minimum salary level. So, for example, employees who draw an annual salary of about $45,000 and earn a $5,000 bonus could still be overtime-exempt.

But the DOL is “only going to allow bonuses paid monthly or more frequently,” McCutchen cautioned.

Only about two out of every 10 employers would be able to take advantage of this possibility, according to attendees:

How_often_do_employees_earn_bonuses

3. Prepare for the possibility that the DOL could still change the ‘duties test.’

Under the current FLSA “duties test,” an employer does not need to pay overtime to employees who spend a majority of their time performing nonexempt duties (for example, taking inventory or manning a cash register) as long as they are free from direct supervision and their exempt duties (for example, supervising subordinates) are a more important part of their job.

Many observers, including your humble correspondent, had expected the DOL would require that employees spend a certain proportion of their time, say 50 percent or more, performing exempt duties to qualify for an overtime exemption.

Many also anticipated that the DOL might change the “concurrent duties” rule, which allows for exempt executives to perform exempt and nonexempt duties at the same time. For example, assistant managers may serve customers, cook food, stock shelves and clean up at the same time as they direct the work of other employees.

The proposed rules left the duties requirements intact, but the DOL has signaled it may still tighten them up when it issues final rules next year. “If you’re trying to prepare for coming into compliance with the final rule, at this point, I would just assume you’re going to be able to have to establish 50 percent of the time spent on exempt work and performing any nonexempt work will count against you,” McCutchen said. “Assume those are going to be in the final regulations and you will not be surprised in a bad way at the end of the day. Ignore this possibility to your peril.”

4. Get involved.

Although it’s difficult to stop the DOL from doing what it wants to do, McCutchen said HR professionals could still shape the final regulations by:

  • Supporting the efforts of their trade associations;
  • Visiting and writing to their US senators and representatives; and
  • Submitting comments on the proposed rules (click the blue “Comment Now” button in the upper corner any time before September 4).

“I encourage all of you to get involved,” McCutchen concluded.

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