New overtime rules require strategic planning

By Jim Kendall

This column originally appeared in the July 20, 2015 Daily Herald

                There’s time to figure out how President Obama’s proposed changes to overtime pay rules might impact your business: Early thinking is that any new rules won’t go into effect until January.

On the other hand, if you want to file a comment with the Department of Labor on the proposed rules, September 4 appears to be the final day for having your say.

There are a lot of dollars at stake. The proposed new overtime rules raise the annual salary threshold for employees classified as managers and therefore exempt from being paid overtime from $23,660 to $50,440. There also is at least some possibility that the job duties which go with salaries to make an employee exempt, or not, from overtime requirements may be adjusted.

Part of the feedback the Department of Labor seeks, according to attorney Sean Darke, is whether or not the duties test should be changed. Darke is a senior attorney in the Wessels Sherman Chicago office.

Salary, though, may be the driving issue. The impact of a higher wage requirement is pretty dramatic. “If cash flow doesn’t support the increased payroll cost, some businesses may have to reduce headcount – or reduce benefits,” says Kristen Harder, principal, C2 HR, a new unit of Wheaton-based C3 Advisors.

“You need to be proactive, do some strategic planning about what you can do to attract and retain employees if you must cut benefit and recognition programs,” Harder says.

The National Retail Federation has vowed to fight the proposed overtime pay rules, stating on its website that “the proposal would limit career opportunities by turning managers into rank-and-file hourly workers” and promising to fight “a subjective problem with quantifiable facts” during the Labor Department’s comment period on the plan.

One option clearly is for employers to change all employees to an hourly rate and reduce the rate, limiting workers to a maximum of 40 hours. That could begin to solve Harder’s concerns about cash flow and employment costs, but, she says, “For the employees’ sake, there’s something to be said for increasing (their) earnings.”

For the typically now exempt (from overtime pay) manager, the $23,660 nudges the poverty line for a family of four.

While planning needs to be done, it might be a good idea to incorporate Darke’s suggestion of “an audit of your work staff to determine whether who you believe is exempt actually will be” under the new rules.

Complicating the issue is that many business owners believe that salaried employees automatically are exempt from overtime rules, but salary is only part of the determination. “There are two elements (that need to be established) to properly classify an employee as overtime exempt,” a Wessels Sherman bulletin said last month. Those elements are the salary basis test and a job duties test.

Of course, the overtime proposal could die, but the societal trend clearly is toward helping lower paid employees.


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