Overtime Rule Changes: How will this impact your business?
While anytime the government tells an employer how or how much to pay an employee, I think it’s a bad thing for business. The Potential Impact of DOL’s Overtime Rule Changes, scheduled to go into effect December 1, 2016 will hurt, but I don’t think it changes the way we do business in a profound manner unless we are currently out of compliance with the current DOL regulations. In working with hundreds of PCOs and land care operators across the country there is definitely a problem here.
The reality is that by truly understanding the change, and by looking at most service firms to determine if they are currently paying their employees properly according to current law, many will realize they may currently be applying the rules incorrectly and moving to compliance may be scarier than complying with the new rules. Under the new rules the way an employee is categorized has not changed in terms of using the exemptions, but rather the threshold amounts that allow an employee to be paid a salary using one of the exemptions are changing.
Many firms that we encounter believe that they can just pay employees a salary and not be subject to overtime – and that’s exactly what they do right or wrong. Even before the rule change this type of payment arrangement is a slippery slope and the employee has to meet certain requirements to be paid a salary. If they don’t meet those requirements the employer is out of compliance.
This is not because of the changes in the law. They are just not applying the current law correctly. The changes will only affect those employees who are paid on salary that use one of the “White Collar Exemptions” (discussed below) as justification for paying in this manner.
For those who are currently paying folks properly and who are using the “White Collar Exemption” properly and have a salaried employee who falls below the new minimum there will be some decisions to be made. But those are the only employees affected by the proposal.
Overtime Rule Changes: Non Exempt and Exempt Employees
Background: Pest control companies and land care companies for the most part employ service technicians, inside and outside sales people, office people / CSRs, Managers / Supervisors
Two concepts are relevant here:
- Non Exempt Employees – Employees who must be paid hourly plus OT after 40 hours per week. Technicians by definition are non-exempt (however they may fall under a provision called 7(i)) see below for discussion. Check with your state as some states are more stringent than the federal rules regarding OT and accepting 7(i) as an exemption. IN ANY EVENT TECHNICIANS ARE NOT THE EMPLOYEE CLASS AFFECTED BY THE PROPOSED RULE CHANGE. Also, most CSRs and other office people must be paid hourly plus OT as they do not meet the “White Collar Exemptions” below. HERE AGAIN THIS CLASS OF WORKER IS NOT AFFECTED BY THE PROPOSED RULE CHANGE AS THEY DO NOT QUALIFY FOR EXEMPTION AND MUST BE PAID HOURLY.
2.Exempt Employees – These are employees who can be paid a salary and are exempt from overtime by virtue of meeting one of the exemptions in the Fair Labor Standards Act (FSLA). Therefore any employee who does not qualify for an exemption must be paid an hourly rate plus OT. There is no proposal to change this rule and many companies that I encounter use this rule incorrectly to classify some of their employees as exempt and pay a salary when they clearly do not meet the definition and therefore are exposed when they come under DOL audit. My fear is that many think that this is the change. It is not. If you are classifying your employees incorrectly so you can pay a salary, I recommend you correct this situation.
Overtime Rule Changes: Administrative, Professional & Executive Employees
What are the exemptions available to allow an employee to be paid a salary and not an hourly wage? I’ve listed the “White Collar” exemptions below that qualify for employees to be paid a salary. These are the job classes that will be affected by the Overtime Rule Changes. Currently each of these classes are defined by their duties tests but in all cases except highly compensated employees as explained below there is a minimum requirement that the salary be at least $23,660 per annum. The new rule raises this amount to $47,476 per year. It’s this raise in the minimum salary for these “White Collar” exemption classes that has caused all of the debate. Remember, just because you pay a staff member a salary that does not mean you are correct in classifying that employee as exempt. We have worked with many clients who have learned this the hard way as they came up on the short end of a DOL audit.
- Administrative Employees – While many office workers (CSR) may fall under this exemption, many do not – This is an area we see many PCOs and land care companies getting trapped during an audit when it comes to light that the employee doesn’t meet the “Duties Test” to use this exemption and therefore must be paid hourly. For more info on the duties test see: http://www.dol.gov/whd/overtime/fs17c_administrative.pdf
- Executive Employees – This is where most managers will fall and as long as they direct the work of 2 or more other employees and have the ability to hire and fire or have significant influence with this regard, you should be ok. However under the new rules this manager will need to a minimum of $47,476 per annum. If he doesn’t you do have the option of moving him to hourly or give him a raise.
- Professional Employees – This exemption is not usually used in our line of work. It is used for work that is “predominately intellectual in character” such as computer engineers, teachers or other similarly skilled workers.
- Highly Compensated Employees – Currently earning more than $100K proposal to move up to $122K – This exemption speaks for itself.
These are the “White Collar Exemptions” and the area that is affected by the Overtime Rule Changes. Remember it’s not technicians that are affected by the overtime rule changes it is those employees who you pay a salary using the “White Collar Exemption”. That said, technicians, in many states, not all (check with your state DOL) may qualify for an exemption called 7(i). This exemption is complex and confusing, but used properly can be very affective. The cliff notes are as follows:
Requirements If a retail or service employer elects to use the Section 7(i) overtime exemption for commissioned employees, three conditions must be met:
1. The employee must be employed by a retail or service establishment, and
2. The employee’s regular rate of pay must exceed one and one-half times the applicable minimum wage for every hour worked in a workweek in which overtime hours are worked, and
3. More than half the employee’s total earnings in a representative period must consist of commissions.
Unless all three conditions are met, the Section 7(i) exemption is not applicable, and overtime premium pay must be paid for all hours worked over 40 in a workweek at time and one-half the regular rate of pay. See: http://www.dol.gov/whd/regs/compliance/whdfs20.pdf.
Should you decide that 7(i) is not for you or you are in a state that it is not acceptable, you must pay hourly plus OT. If you want to pay production bonuses and or commissions you can but these payments must be increased by a “Special” overtime rate if the employee has worked more than 40 hours. ADP has a nice fact sheet at http://sbshrs.adpinfo.com/blog/special-overtime-situations-how-to-properly-calculate-overtime-pay
What you should do: Look at all of your non technician or commissioned employees that you pay a salary. Revisit the exemption definitions. If they don’t meet the requirements, put them on hourly plus OT. If they do meet the definitions but their salary is less than $47,476 decide on what to do in order to comply. The choices are give them a raise or put them on hourly plus OT. Learn more about pest control labor costs.
Marisa is Content Editor for PCO Bookkeepers, PCO M&A Specialists and Turfbooks.