Heads up: overtime exemptions are about to change. On March 7th, 2019, the Department of Labor (DOL) proposed new regulations which will make more than a million more people eligible for overtime pay.
The proposal raises the salary-level threshold
The proposal increases the salary-level threshold for white-collar exemptions. Workers earning less than $35,308 a year ($679 a week) will be eligible for overtime even if they’re classified as a manager or professional. This is a scaled-back version of the Obama administration’s 2016 proposal, which sought to increase the cutoff to $47,476 in 2016 and automatically adjust the threshold every three years.
Other key points
- Nondiscretionary bonuses and incentive payments (including commissions) satisfy up to 10 percent of the standard salary level.
- Workers who earn at least $147,414 ($679 of which must be paid weekly on a salary or fee basis) are considered highly compensated and therefore exempt.
- The expected effective date will be around January 2020.
- The DOL will evaluate updates to the salary threshold every four years.
What it means for business
Scandals in the making
Nobody wants to be the center of the biggest scandal of the year. Still, wherever you find guidelines, you’ll also find someone trying to get around them. It behooves companies, however, to be proactive about new guidelines instead of trying to work around them. Just ask the happiest place on earth. For its not so happy dealings (broken down here), Disney agreed to pay $3.8 million in back wages for violations (including failing to pay overtime).
More people will be eligible for overtime
The key point in the proposal stands to make over a million more workers eligible for overtime. Many companies and industries that traditionally require long hours have always made room for fudging paperwork. In some cases, companies negotiate a flat rate and contractors work as long as it takes to get the job done. Since it’s standard practice, submitting time sheets that read “9-5” when everyone knows it was actually 9-9 hasn’t necessarily seemed unethical or unfair to either party. That’s just the way it is. Or at least the way it has been. As attention increases, workers may start questioning their overtime eligibility.
A cultural shift
The proposal also brings into question current pay practices and the broader culture they exist in. The more the press highlights these points, the more the people talk. And the more the people talk, the more the wink and nod approach will come under scrutiny. The frequency of corporate scandals similar to Disney’s points to a broader culture that tolerates or encourages finding a way around the rules. A 2014 study found that “Nearly nine in 10 (89%) fast food workers report that they have been the victim of wage theft at their fast food job, and most have experienced multiple forms of wage theft.”
Nothing shifts culture quicker than attention. As laws change and contractors and workers start thinking “this relates to me,” there will be pushback against industry norms. And it’s not just the workers. The media love to find and expose wrongdoings.
The benefits of compliance are bigger than complying
A mutual expectation of a flat rate for an undetermined number of work hours doesn’t count as compliance. Duties and level of pay dictate whether or not someone is eligible for overtime, not tradition. Disney isn’t the only company bending the rules. They just got caught. While the circumstances differ, any industry can learn a few lessons from Disney about how to walk above board and avoid ending up in court. Disney said in a statement to the Orlando Sentinel, “We are adjusting our procedures to avoid this in the future.”
The benefits of complying with rules go far beyond avoiding scandals and fines. Companies who get ahead of the game and comply—without before being forced to do so in the courts—stand to maintain consumer and employee trust. Such trust is hard to earn but even harder to win back after losing it. Why gamble your business instead of just recognizing eventual changes to overtime regulations now?
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