[IMGCAP(1)]In a few months, businesses and some white-collar employees may be feeling some changes to their pocketbooks. In May, the Department of Labor published the final rules revising the “white collar” overtime exemption regulations. Since then, HR experts across the country have been scrambling to help their stakeholders—bosses, clients and employees—figure out what this means to their business, and more importantly, how it will be implemented.

The new rules don’t apply to non-exempt, hourly workers, who are eligible for overtime no matter their earnings.

On September 20, the great state of Texas partnered with Nevada to lead 21 states in filing suit against both the Labor Secretary and the Department of Labor to try to stop the implementation of the overtime rules. The suit outlined the extreme monetary impact it will have on entities, including state and local governments, and even public universities. The lawsuit requests a declaratory judgment that the new rules are unlawful to the named states and seeks to prevent immediate implementation of the rules by the federal government. 

The case currently resides in the U.S. District Court for the Eastern District of Texas, with the Honorable Judge Ron Clark presiding. As it is unlikely the court will hold an injunction hearing and issue a decision before the Dec. 1, 2016 deadline, businesses are being advised to continue making any necessary changes to comply.

The Facts
All changes will be effective Dec. 1, 2016.

1. White-collar exempt employees must earn at least $913 per week ($47,476 annually) to be disqualified from overtime pay (time-and-a-half in excess of a 40-hour work week). The old threshold was $23,660.

2. Nondiscretionary bonuses can satisfy up to 10 percent of the new salary requirement as long as they are paid on a quarterly or more frequent basis.

3. Highly compensated employees must be paid at least $134,004 annually to be disqualified from overtime pay.

4. Automatic updates to these salary level requirements will now occur every three years, beginning Jan. 1, 2020.

The Warning
1. Given the December 1 deadline, HR and legal professionals highly recommend that companies implement any changes resulting from the new regulations a month or two before the deadline to iron out any kinks in the new system. Penalties will apply for those out of compliance.

2. Many companies have not budgeted for such a significant payroll increase, nor can they necessarily afford it. They will have to assess their workforce strategy and make adjustments.

3. “Salary level requirements” are new terms in our business lexicon for many business owners and employees alike. Much like cost-of-living adjustments, salary requirements for exempt employees will change on a periodic basis, and will impact employee salaries and company budgets.

The Plan
As overwhelming as it might seem, businesses shouldn’t be doomed to financial ruin due to these changes. Here are some immediate steps companies can take:

1. Assess your current job descriptions and their salary levels.
  a. Which exempt positions are close to the new salary level?
  b. Which positions should be reclassified as non-exempt?
  c. Move people as appropriate.

2. Choose wisely and creatively from the following options based on the economics of your business:
  a. Raise exempt employees to the new levels or pay no overtime.
  b. Leave exempt employees’ salaries below the new levels and pay time-and-a-half for overtime worked.
  c. Limit workers’ hours to 40 hours per week by reorganizing, adjusting schedules or hiring additional people.
  d. Combine some of the above suggestions.

3. Develop, implement and train time-keeping processes and procedures for any affected employees. For those not used to tracking their time, there will be a learning curve. Ensure you allow sufficient adoption time.

4. Communicate. Any change to your employees’ pay, even if it is an increase, will be a sensitive matter. More information can provide for an easier transition.

5. Get help. New rules can be complicated, and the downside of getting it wrong may be costly. If you don’t have onsite staff to help you or if you’re not sure, contact a trusted advisor to help you work out the details.

The Aftermath
According to the DOL, these changes will result in $1.2 billion in extra earnings, either through pay raises or overtime compensation, across the country. In Texas alone, it is estimated that 370,000 employees will be affected—the second highest impacted workforce just behind California.

As you move forward, help employees keep an open mind about any new timekeeping procedures and policies. Whether they’re fast food employees or retail workers, lawyers or consultants, exempt and non-exempt employees alike track their time. Also, be clear about responsibilities, job positions and hours, especially if there is movement. Try to be transparent throughout the process and provide employees with as much information as possible. It might alleviate uncertainty and provide for a much smoother transition.

Debbie Roos is the chief operating officer for ATKG LLP, a San Antonio, Texas accounting firm.

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