Association Budgets Beware – New Federal Overtime Rules Are Coming

Feature Story

Association Budgets Beware – New Federal Overtime Rules Are Coming

This past spring, the Obama administration announced new rules which go into effect on December 1st regarding overtime pay for certain employees. I interviewed Heather Paton, CMCA, AMS, PCAM, Executive Director of Seabrook Island POA on Johns Island, South Carolina, who pointed out that many associations will need to be aware of the new rules in creating their budgets for 2017 and beyond.. 

NOTE: 12/23/2016 UPDATE: This legislation has been put on hold.

Newman: In what ways do the Federal overtime rules affect associations?

Paton: The Overtime Final Rule on Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees under the Fair Labor Standards Act (FLSA – The Final Rule) affects associations with full-time salaried employees.  The Final Rule, which takes effect on December 1, 2016, updated the salary level above which executive, administrative or professional (“white collar”) employees may be exempt from overtime pay requirements. The update raised the salary level requirements from $455/week ($23,660/year) to $913/week ($47,476/year).  These compensation levels will be reviewed and updated every three years beginning in 2020.  The determination of eligibility for overtime is not solely based on salary.  The FLSA “standard duties test” is a critical factor in determining exempt or non-exempt status.

Newman: How should associations approach incorporating these new rules into their budgets for next year and beyond?

Paton: The months prior to December 1, 2016 provide an opportunity to evaluate what the budget impact of the Final Rule may be.  Associations should review salary levels, weekly hours worked and job duties to determine which, if any, employees are affected by the Final Rule.  Salaried employees who earn less than the $47,476 salary level are generally required to receive overtime pay for hours worked in excess of 40 per week.  Employers have several options available in responding to these changes:

1. Raise salaries to maintain the overtime exemption for those employees whose job duties comply with the professional, executive or administrative exemptions.  Additional information on these exemptions is available on the US Department of Labor website.
2. Pay current salaries with overtime if the employee works over 40 hours.
3. Review and reorganize schedules, work distribution or hours to ensure employees work 40 hours or less, and that their hours of work are during the time period most critical to their job.  Take the example of an employee who is assigned to work from 8am-5pm, but their department’s peak demand hours are from 11am-7pm.  The employee frequently works until 7pm to handle the heavy demand.  An employer can reevaluate the hours of work and assign the employee to work from 10am-8pm, so overtime pay isn’t required.  Other options are to distribute work among other employees who usually work less than 40 hours or increase the hours of part-time employees to take over the extra work assignments.

In anticipation of budget needs and for reporting purposes, it is important that employers maintain accurate records of the number of daily hours worked by each employee.  This can begin prior to the December 1^st Final Rule start date.  This doesn’t mean that employees are required to punch a clock each time they start or end work.  The employee can provide a record showing the total number of hours worked each day, including the number of overtime hours, at the end of each pay period.  This information is helpful to the employer in reviewing workload, possible job-duty reassignment and salary levels.  

Newman: What needs to be included in an employees’ work hours?  For example, if a manager is required to attend an on-site board meeting, is his or her travel to and from the board meeting part of their work hours according to the Final Rule?

Paton: All hours worked should be included in the record of employee work hours.  The Final Rule does not specifically address travel time, but the Department of Labor guidelines state:  “Time spent by an employee in travel as part of his principal activity, such as travel from jobsite to jobsite during the workday, must be considered as hours worked.”

Newman: If an employee’s salary is over the limit for the new overtime rules, does that mean associations can safely disregard tracking the number of hours worked?

Paton: Not necessarily.  It is good business and planning practice to record hours worked for all employees.  Payment of a specific salary alone doesn’t guarantee that an employee is exempt from overtime.  The Final Rule sets the salary as only one of the factors to determine if an employee is eligible for overtime.  The employer needs to evaluate if a white collar exemption exists by reviewing the job duties as they relate to the administrative, executive and professional exemptions in the Standard Duties Test.  Some of those duties include the “primary duty” of managing the business or a department with at least 2 full time employees, exercise of discretion and independent judgment with respect to matters of significance, or work that required advanced knowledge in a field of science or learning. 

Newman: Is it good practice to raise an employee’s pay to be over the limit in order to avoid the new rules?

Paton: If the employee meets all the criteria for the white collar exemption, raising their pay over the threshold is an option (and the employee would probably be very happy)!  Using the data from the time records gathered in advance of the Final Rule implementation date, employers can determine if the current salary and overtime totals are higher or lower than raising the salary over the threshold.