New overtime rules prompt renewed focus on employees’ duties

OvertimeBy Chad A. Shultz

Gordon & Rees LLP Atlanta Employment Team

With the finalization of the new overtime rules, over 4 million workers and their employers will soon be impacted by the new regulations. The most significant change to current overtime laws is the new $47,476 salary threshold to be potentially exempt from receiving overtime.   In other words, as of Dec. 1, 2016, any employee who earns less than $47,476 per year or $913 per week will be due overtime for all hours worked over 40 in a given work week, even if their “job duties” would otherwise qualify them to be exempt from receiving overtime pay.

The fact that everyone is talking about the change creates a larger challenge for all employers because employees will question whether they are being paid properly, i.e. whether they should be getting paid more.  There are plenty of resources (e.g. plaintiff’s lawyers) who are eagerly awaiting the opportunity to answer the questions when these employees ask.  As you know, these lawsuits are very lucrative for lawyers.

To be exempt from overtime pay, the employee must be paid at least the threshold amount ($47,476 annually), and their actual “job duties” must meet certain specific requirements. Simply paying the employee the threshold salary is only half the story.  The job duties tests remains unchanged, but it will be scrutinized even more closely in the coming months by your employees (and their lawyers).

Below is a quick refresher of the most common “white-collar” exemptions:

Executive Exemption: (1) The primary duty must relate to managing the business or one of its departments or subdivisions; (2) the employee must regularly supervise or direct the work at least two full-time employees (or equivalent part-time employees); and (3) the employee must have the authority to hire or fire employees, or the employee’s recommendations must carry a “particular” weight with such topics.

Administrative Exemption:  (1) The primary duty must be performing office or other non-manual work that directly relates to the management or business operations of the employer; and (2) the employee’s primary duty must include the exercise of discretion and independent judgment with respect to significant matters.

Moreover, there are three additional exemptions: Professional Exemption (Learned or Creative); Computer Employees; and the Outside Sales Exemption.  These exemptions are typically specialized and we rarely see employees misclassifying these employees.  As such, the Executive and Administrative exemptions deserve the most attention.

The “job duties” analysis for each employee who is considered salary exempt, must be done carefully because there is significant exposure to liability if done wrong.  Indeed, misclassification rests at the heart of some of the largest class and collective action settlements in the past two decades.  Also, job duties tend to change over time, so this analysis should be done at least annually. Consideration should be given to having this initial evaluation done by a third party professional who can view your entire workforce objectively (and ask tough probing questions).

To begin the process of self-analyzing potential areas of concern, consider the following questions.  These are designed to identify red flags in your organization that call for a deeper analysis.

  1. Do we use “independent contractors”?
  2. Do we have employees who regularly eat lunch at their desks?
  3. Do we make automatic deductions for our employees’ lunch or other breaks?
  4. Do our employees have access to their email after work hours?
  5. Do we allow employees to arrive more than five minutes before their shift starts?
  6. Are there any incentives to encourage managers to under-report hours worked by their employees?
  7. Do employees record their own hours?  If so, is it possible for employees to under-report their actual hours worked?  Is there any incentive for them to do so?
  8. Do we calculate overtime compensation to include performance bonuses?
  9. Do we provide our employees “comp time” in lieu of overtime compensation?
  10. Do we require arbitration for all compensation disputes?

The questions are designed to help identify potential problem areas.   They are the first questions asked in a compensation audit, and depending on the answer to these broad questions, the auditor can then determine the areas on which to focus for the more thorough analysis.  As an employer, if the answer is “yes” to any of the questions, you may need assistance with conducting the necessary changes and implementing policies in compliance with these new regulations.

Please contact Sparkmon & Associates, CPAs, if you have any questions about whether the new overtime rules will apply in your company.

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