Upper Saddle River, N.J. - August 23, 2004 - The day has finally arrived, and the new overtime rules are now in effect. Even with the new regulations in force, employers are still asking, “what are they and how will it change the way overtime is handled?” Basically, employees making less than $455 per week ($23,660 annually) are automatically entitled to receive overtime. Conversely, salaried employees earning $100,000 or more a year are exempt from overtime. The rules governing the group in the middle (annual salary from $23,661 to $99,999) are somewhat more specific, but at the same time, they make more jobs exempt from overtime; as such, this group may require some additional TLC in the compensation planning process. Also, the old rule that an individual could not perform non-exempt work for 20% or more of their time in order to remain exempt has been eliminated, and replaced with the requirement that the employee’s work must be substantially professional, administrative or managerial. This change is less definitive and considered by many to be rather ambiguous, but is the basis for determining whether an employee can now be considered exempt from overtime. For example, emergency service workers such as fire and police are all considered to be non-exempt and eligible to receive overtime, while professionals such as registered nurses, pharmacists, journalists, and insurance claims adjusters are now considered to be exempt.
As recently as this Spring, employers were still generally apathetic on the new rules; a recent study indicated that many organizations (65%) did not know how the new rules would affect their payroll, and a majority (81%) indicated that they were unaware of the general administrative costs associated with compliance. CRI’s own survey conducted this month seems to indicate that “the word has gotten out”, with nearly 82% indicating that they had or were in the process of reviewing their job descriptions in anticipation of the overtime changes. These changes, while a long-time coming, now raise a number of significant questions: What should companies do to insure their compliance? How should they handle changes to the exemption status of individual employees? In answer to the first question, all organizations should familiarize themselves with the new regulations, and then review their internal policies regarding approval of scheduled overtime, tracking of employee time, overtime payments, etc. This is in addition to reviewing the job descriptions to make sure they are accurate and truly reflect the aspects of the positions that would impact each job’s qualification for exemption status.
The second question is not as easy to answer. Each company’s situation is different, and their ability to shift jobs from non-exempt to exempt status, and thereby eliminate overtime, must be carefully considered. It is important to recognize that very few, if any, employees will willingly give up the opportunity to receive overtime, unless they are compensated in some other manner. Rolling all or a portion of their historic overtime into their “guaranteed” salary would certainly lessen the negative aspects of eliminating overtime, but it is important to avoid compression problems in which the previously non-exempt workers would now make more than their exempt leaders. It is necessary to have a well thought-out plan that looks at the entire situation, and acts in a fair and consistent manner throughout the organization. Lastly, but just as importantly, communication to all employees about any changes that will be made is a key to success, and should explain why they are being made and how it will impact them, and how the changes will be implemented.
