7 STEP GUIDE. Mastering Proposed Department of Labor Overtime Updates. powered by

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1 7 STEP GUIDE Mastering Proposed Department of Labor Overtime Updates powered by

2 7 Steps to Mastering DOL Proposed Overtime Regulations In June 2015, the Department of Labor proposed revised regulations which affect the Fair Labor Standards Act s white collar overtime exemptions. The proposed regulations increase the salary threshold needed to qualify for overtime exemption from $455/week ($23,600 per year) to $970/week ($50,440/year). This proposed regulation has many implications for employers throughout the United States. Any business that employs exempt workers with salaries under $50,440 would be directly affected by the new regulations and need to consider their best course of action for each affected employee. As these are proposed regulations, they may be changed before becoming final and binding. However, because the regulations are expected to be effective in early 2016, employers should prepare as if the proposed regulations will go into effect as written. This guide aims to help employers not only understand how the changes affect them, but what actions they can take to best help their business and ensure they are fairly compensating their employees. Please keep in mind that each state has its own wage and hour laws and some cities have adopted their own wage and hour laws, too. You must comply with the FLSA plus any state or local laws that apply in each location where you have employees working for you. 1 Identify your exempt employees making less than $50,440 per year 2 Determine the actual hours these employees work per week 3 Determine the appropriate hourly rate for affected employees 4 Calculate a new hourly rate for those salaried employees This information is current as of October 30, 2015.

3 5 Prepare to have a conversation with your employees 6 Begin tracking your reclassified employees hours 7 Compare your expectations versus results in real time This information is provided for educational purposes. You should seek specific legal advice before acting with regard to the subjects mentioned herein. Any calculations contained herein are for example purposes only.

4 Steps to Mastering the Proposed White Collar 7Exemptions

5 The DOL Overtime update could affect you in many ways. One employee alone could increase costs by $1,500 per year. Once you combine this with additional hours or employees, the costs increase dramatically. Managing your employees will be difficult, but Paycor can help! 65% According to Paycor data, 65% of businesses employ at least one employee who earns a salary of $50,440 or less a year. The Impact to One Employee + = $1.5k 1 Employee with a Salary of $40,000 1 Hour of Overtime (OT) per Week Cost per Year (per Employee)

6 STEP 1 Identify employees making less than $50,440 per year Those who may be affected by these proposed regulations are salaried exempt employees making less than $50,440 per year. Employers should have a plan in place for each of these employees as they may become eligible for overtime pay. Depending on their current salary, their role, the classification of their role and the number of hours they work, each employee will have a different outcome. You should start by creating a list of every exempt employee and their compensation to make the best decisions for your organization.

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8 STEP 2 Determine the actual hours these employees work per week Once you have a list of exempt employees who earn a salary under $50,440, you need to determine their approximate hours to see if they would be eligible for overtime pay. If you currently track these employees hours, you can easily divide the employee s current salary by 52 (weeks in a year) and divide that number by the average hours worked per week. Many employers do not currently track the number of hours that their salaried employees work. If you do not track these employees hours, you should begin doing so immediately. Having an accurate calculation of hours worked per week will be very important as you seek to comply with these new regulations.

9 STEP 3 Determine the appropriate hourly rate for affected employees If you have employees who work more than 40 hours per week, you will need to determine their hourly rate and find out how overtime will affect them. This is critically important to make sure that you don t begin paying exorbitantly higher wages to employees who work long hours. Conversely, you may need to increase salaries for those who do work long hours if overtime is more of a standard than an exception for those employees. Here are some examples of how this could affect you. Let s say you employ an individual who earns $40,000 a year. Under the new law, every additional hour they work per week amounts to almost $1,500 a year in additional pay. Knowing the cost for each additional overtime hour will be critical for your planning.

10 Current and New Salary Under Proposed Law Name Current Salary Hours Worked New Annual Pay Under Proposed Law Tim $30, hours/week $38, Darnell $40, hours/week $55, Beth $45, hours/week $51, Anita $35, hours/week $61, While this is a fictional scenario, consider the importance of truly understanding your employee s hourly rate. If you used 40 hours per week to calculate each employee s new hourly rate of pay and each employee continues to work the same amount of overtime, you would actually be liable for an additional $56, per year for just four employees. By calculating the employee rate of pay and understanding how many hours they work, you can choose from several options to stay in compliance while doing the right thing for your employees and your business.

11 STEP 4 Calculate a new hourly rate for those salaried employees With the information you ve collected in steps 2 and 3, it is time for you to calculate the most accurate hourly salary for each employee to ensure that your labor costs remain reasonable. Let s again use the example from step 3. If Tim makes a $30,000 salary and works 48 hours a week, we have four primary options to consider: Note: Other options may exist beyond the four presented. Contact your legal counsel for other options that can work for your organization. Option 1: Reclassify Tim from salaried to hourly. Adjust his hourly rate to reflect the expected overtime hours. Option 2: Bump Tim s salary to $50,440 and don t worry about tracking his hours worked or paying overtime. Option 3: Reclassify Tim and don t allow Tim and similar employees to work overtime. If Tim works unauthorized overtime, you still have to pay him for it. While you will reduce costs, in the example, you will lose 8 hours of Tim s work. Option 4: Reclassify Tim without properly adjusting his rate of pay and watch Tim s annual pay grow by $8,

12 We expect that most employers will choose option 1, so that they may control their costs while also continuing to take care of their employees. To calculate option 1, you will take Tim s annual salary, divide it by 52 (weeks in a year) to understand Tim s average weekly salary. In this case, Tim makes approximately $ per week. We also know that Tim works approximately 48 hours, meaning he works 8 hours of overtime on average. Now you can use this information to determine the correct new hourly rate to pay Tim to ensure that you are still paying him close to $30,000 under the new regulations. In this case, Tim s hourly rate will be $ This number does look significantly different than the typical hourly rate if they were to work 40 hours per week, which would be $14.42 per hour. We know that doing this calculation on your own will be time consuming and tedious for employers. Paycor s Reporting and Analytics solution can help you understand what the correct hourly rate should be for your employees based on the hours you expect them to work. NEW WEEKLY SALARY [OT hours X (1.5 X New Rate)] + (40 X New Hourly Rate)

13 STEP 5 Prepare to have a conversation with your employees Your employees will have many questions around this change. You will want to have an effective communication plan to help your employees understand this. There will be many important points you ll have to share with them. For example, a salaried employee who has to be reclassified to non-exempt may be accustomed to going to lunch or personal appointments without punching out. Under the new regulations, the employee will have to record when they leave and when they return for compliance and pay purposes. Be sure to set up one-on-one time with affected employees to explain the law, describe the change and expectations and assure the employee of their importance to your organization. Some employees will see this change as a demotion or a pain point with their role. Having a meaningful conversation about why you had to make these updates will make the transition easier.

14 STEP 6 Begin tracking reclassified employees hours The end result of the proposed new regulations will be that you have to reclassify many of your exempt employees to non-exempt and begin paying them on an hourly (or salaried basis) plus overtime. That means you will need to begin tracking these newly classified employees hours to ensure you are paying them properly and your business is protected in the event of an audit. Paycor s Perform Time solution ensures accuracy and easily allows you to report on this information. Perform Time offers the unique benefit of being in the same database as HR and payroll information, so you don t have to switch back and forth or compare information from two places. This will be a critical advantage for your business, so you can run real-time results between hours worked and the employees rate of pay. Most solutions require you to pull this information from different databases and combine multiple spreadsheets. Having a unified platform for time and payroll will provide your business a huge advantage and ensure accuracy.

15 STEP 7 Compare your expectations versus results in real time Now that you ve done all of your proper prep work, it s time to have an ongoing method of tracking your expectations versus results. Having a unified time and payroll database will improve accuracy and increase efficiency, while providing real-time results. For example, if you are expecting an employee to work 45 hours a week, you want to make sure they don t begin working 50 or 55 hours per week. As you pay your people throughout the year, begin comparing how much you are paying people versus your expectations.

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