Understanding the Dept. of Labor’s New Overtime Rules

This article appeared in the July/August issue of Athletic Business. Athletic Business is a free magazine for professionals in the athletic, fitness and recreation industry. Click here to subscribe.

In May, the Department of Labor announced updates to the Fair Labor Standards Act. One change in particular is generating a lot of discussion — and headaches — among employers and employees alike: the minimum salary for exempt white-collar employees more than doubled, from $23,660 to $47,476.

What does that mean? "Before, if you were at least $23,660, you were considered exempt and an employer could make you work as much overtime as possible," says Susan Brown Foster, professor of sport business at Saint Leo University in Florida. Now, anyone making below $47,476 would need to be compensated at time and a half for working in excess of 40 hours during a workweek. "As you can imagine, college athletic and recreation departments have a lot of people who make between $23,660 and $47,476," Foster says.

Between now and Dec. 1, employers will have to determine what to do with salaried employees falling into that range — the sooner the better, given the careful planning required to evaluate all employees' workloads and determine what the best course of action will be and how to transition employees smoothly. "You might find that you have to change your workforce and operations to meet these new standards," Alex Passantino, a partner with law firm Seyforth Shaw, told listeners of a webinar conducted in May in partnership with NIRSA and the College and University Professional Association for Human Resources. "There will be all kinds of issues related to keeping track of time. Those things need to be factored in on the front end. It's not necessarily as simple as flipping a switch."

UNDERSTAND WHAT EMPLOYEES DO
The first problem employers might encounter is understanding exactly what their employees do and how much time they spend doing it. "You have exempt employees who have not been keeping track of their hours," Passantino says, recommending employers use email records or building access information to begin to understand when employees are working. Time spent traveling should also be considered.

Employers also need to determine whether the duties the employee conducts fall under the white-collar classification, or whether some other exemption may apply. "When you're looking at coaches, you're looking at a variety of different potentially applicable exemptions," Passantino says. Coaches, for example, may qualify as teachers, who do not fall under the same minimum salary rules. Other classifications that may apply to different employees include academic administrator or outside sales employee.

Also important is understanding seasonal employees, or those who work only a portion of the year. In such cases, the weekly paycheck may be less than the $913 minimum but not an accurate reflection of salary. "A nine-month employee who earns $45,000 over nine months meets the requirement even though the weekly paycheck, because it's spread out over 12 months, falls under," Passantino says. "You can pay the salary over a longer period of time and still meet the test even though it falls under the weekly requirement. What is very important is that employee cannot perform work outside of that period of time."

Once employers have a clear understanding of who in the organization or department will be affected, they then need to consider what to do with those positions.
 

Want to know more? Make sure to check out Susan Brown Foster's session at the Athletic Business Show, this Nov. 17-19 in Orlando, Fla. For more information, visit www.abshow.com.

ADJUST SALARIES
The most straightforward option would be to raise salaries to the minimum required for exemption, a potentially expensive move, especially when looking beyond the scope of those employees immediately impacted. "Consider the ripple effect on upstream employees — if you raise someone from $42,600 to $47,476, and their supervisor made $48,000, do you have to raise the supervisor?" Passantino asks.

Then, there's the issue of contracted positions. "That's going to be interesting, since the rule takes effect mid-year," Foster says. "But a lot of athletic departments are redoing contracts right now. They may have to do it based on, 'Here's your salary through December, and you'll get more in January.' I think everybody's going to handle it differently."

The new rule does allow some flexibility as applied to salaried positions, Passantino adds. "For the first time ever the Department of Labor is allowing employers to satisfy up to 10 percent of an employee's salary with non-discretionary bonuses, incentive pay or commissions, if paid on a quarterly basis at least." The bonuses don't allow an employer to skirt the minimum salary requirements, but it does offer some flexibility on how employees are paid.

Just raising all salaries to the minimum required is also a short-term solution. After remaining at $23,660 for 40 years, the new minimum will be adjusted every three years.
 

RECLASSIFY EMPLOYEES
Employers may choose to keep employees' salaries and duties the same but treat them as hourly employees and work to minimize overtime — or adjust employees' hourly pay to account for expected overtime. "If they're making $23,660, there's no way employers are going to be able to double their salary," Foster says. "So a lot of jobs will be switched to hourly and benefits will drop." Even if benefits don't change, going from salaried to hourly may feel like a demotion to some employees and affect morale.

Switching from salaried to hourly comes with a lot of adjustments for the employer. Things like checking email or returning texts after normal work hours would now need to be tracked as hours worked. "You have to remember that these employees are non-exempt," Passantino says. "You have to track all their hours, even if there's no overtime worked. You have to pay attention to off-the-clock work, you have to deal with meal and rest breaks, you have to deal with the headache of travel."
 

RESTRUCTURE JOBS
Once administrators understand the duties each of their employees performs and what hours each employee works, they might opt to reallocate duties and redefine positions — or create new ones. "Take two positions paid $42,000 and change the job duties," Passantino says. "Take some of the more exempt functions and roll those into one job, raise the salary over the threshold, and then you'll have the other job, which has less of an exempt status, and convert that to hourly."

Duties might be shifted so that an employee's primary responsibilities put him or her under a different exemption class. In some cases, says Passantino, phasing in changes might be appropriate. "Maybe for the time being, you're going to pay salary plus overtime but manage overtime," he posits. "What will happen is the next person who comes in will come in at a lower level to accommodate the overtime. You've got to be thinking not just in terms of short-term ramifications, but you can plan further down the line to make up for some of these consequences."
 

CREATE AN ACTION PLAN
Assessing employees' roles and determining what changes need to be made is only the beginning. Employers will need to plan carefully to educate employees on the changes and minimize any resentment or confusion. Passantino recommends putting together a team of stakeholders to define the ultimate goals of the transition and then develop a plan for communicating those goals. "You do need to have real explanations in place as to why certain positions were reclassified, who got a raise and why. You're going to get all of those questions."

This article originally appeared in the July/August 2016 issue of Athletic Business with the title "Ready for the new Overtime Rules"