NEW OVERTIME RULES – DON’T PANIC

June 8, 2016

In the weeks since President Obama signed the executive order changing the salary requirements for certain executive, administrative and professional employees, there has been a lot news coverage, most of it incomplete and distressing. The Department of Labor hasn’t helped the situation with its banner headlines such as, “Overtime updates will extend protections to 4.2 million workers” and a map of how those millions of workers are scattered among the states. (Pennsylvania is estimated to have over 100,000 such workers.) The good news is that despite what you’ve heard, the new rules don’t guarantee a pay raise to anyone. That’s worth repeating: The new rules don’t guarantee a pay raise to anyone. Surprised? Read that Department of Labor headline again. “Overtime updates will extend protections to 4.2 million workers” Simply stated, the new rules provide that if as of Dec. 1, 2016, your salaried (that is, exempt) administrative, professional, or executive employees make less than $47,476, they are no longer exempt from overtime payment. They are not automatically given a raise.

What does this mean for non-profits? Administrative, professional, or executive employees can be paid a salary of less than $47,476. If you choose to pay the employees less than $47,476, they will become a non-exempt employees, who would be entitled to overtime (time and one-half) for all hours over 40 worked in a work week. (Teachers, lawyers and doctors are not included in the professionals entitled to the increased salary. They remain exempt regardless of salary.)

Still worried? You have options.

  1. Maintain current salaries. If your administrative, professional, or executive employees typically work 40 hours in a week and rarely more, maintaining the current salaries may be right for you. Just remember to change their status from exempt to non-exempt and require them to keep time records. Overtime, should it occur, would be calculated as the hourly rate (weekly salary/40) times 1.5.
  1. Do the math. Stretched to the limit? Executives working more hours than ever? Do the math before you raise any salaries. Here’s an example (from the Department of Labor) illustrating how important it is to review before you raise. A fundraising supervisor at a non-profit earns $37,000 per year ($711.54 per week). He regularly works 45 hours per week. The employer may choose to instead pay him an hourly rate of $15 and pay time and one-half for the 5 overtime hours worked each week. $600.00 (40 hours x $ 15 / hour) + $112.50 (5 OT hours x $15 x 1.5) $712.50 per week. Alternatively, the employer may choose to pay him a salary of $600 per week and pay the overtime for hours in excess of 40 per week. $600.00 (salary for 40 hours/week, equivalent to $ 15/hour) + $112.50 (5 OT hours x $ 15 x 1.5) $712.50 per week. (Paying overtime results in only a $50 increase for the year. Had the employer jumped to paying the new minimum salary, it would have given him a raise of more than $10,400 per year.)
  1. Usebuilt in” overtime. Many employees’ typical work week is actually 35 or 37.5 hours per week, depending on whether they get one hour or one-half hour for a meal. Non-working time is not counted toward the 40 hour total for non-exempt employees. That “builds in” 2.5 to 5 hours of additional time into the week in times of need. Of course, any hours over 40 would be paid at time and one-half. (And if they perform any work during those meal breaks, the meal breaks must be paid and counted toward the 40 hours.)
  1. Manage overtime. Consider whether some of the routine tasks performed by your administrative, professional, or executive employees can be performed by someone who either doesn’t work at least 40 hours per week or who makes significantly less. Reassigning tasks may keep overtime payments to a manageable level. Also, enforce your prohibition on unauthorized overtime. Yes, you can forbid unauthorized overtime. You can’t refuse to pay, but you can discipline an employee who works overtime in violation of your rules.

Still confused? Call me. Together we’ll find a solution right for your non-profit.

Jean Novak is co-chair of the Employer-Employee Relations Practice Group and member of the Public and Non-Profit Practice Group. She can be reached at 412-281-5423 or at jnovak@smgglaw.com.