Controversial regulations raising the threshold for overtime payments under the Fair Labor Standards Act face anything from presidential tinkering to a court challenge or six-month delay. However, brokers and advisers are still urged to review the rules with their employer clients given the widespread level of uncertainty about their eventual impact.

House Republicans have proposed delaying the rules from Dec. 1, 2016 to June 1, 2017, while Republican presidential nominee Donald Trump favors exempting small businesses. Also, 21 states recently requested that a federal judge block their implementation. The Labor Department already has extended the comment period to help an estimated 4 million-plus businesses comply.

Bloomberg/file photo

The proposed doubling of OT salary requirement means employees earning as much as $47,476 a year are entitled to overtime wages if they work more than 40 hours a week.

“The brokers we’re working with are pretty clear on the fact that there may be some benefits implications that they’ve got to be talking about with their clients,” reports Laura Kerekes, chief knowledge officer at ThinkHR. Her team provides HR content and training services to nearly 100,000 companies employing millions of people.

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For example, benefits eligibility tied to salary may need to change for employees who are reclassified from exempt to non-exempt status, and thereby entitled to OT pay, which she says could affect an employer’s benefits budget. The new rule also could affect compliance with the Affordable Care Act based on the method used to calculate affordability of health benefits.

“The broker is going to have to be in the middle of it to help them decide or refigure their benefits programs with the budget they have available, given these additional costs,” according to Kerekes, noting how the issue could be a concern in the hospitality and retail sectors.

Some employers, of course, will adjust compensation to reflect the new rules, while wise companies will approach it from both a technical and strategic standpoint, predicts Roberta Watson, a partner with the Wagner Law Group. “That takes time,” she says, “but it has been our experience that many companies are putting off taking the appropriate steps.”

Tough conversations

Invariably there could be delicate communication challenges involving workforces that have long been classified as exempt. A restaurant or retail store manager earning $30,000 annually where salaries aren’t high and is accustomed to long hours suddenly may have to punch a time clock, Kerekes explains. The likely outcome: a need to authorize OT hours in advance.

An even tougher conversation could take place, she says, if an employee’s salary is raised from $30,000 to $47,476 to keep them exempt and working long hours. “We’ve had some reports where employees have asked the follow-up question, ‘Have I been that underpaid all this time?’” Kerekes says.

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Moving exempt employees to non-exempt status can create multiple challenges, according to Watson’s colleague at Wagner, David Gabor. For example, work done in the evening or weekend at home would now have to be controlled, while some workers may view their job re-classification as a demotion. Employers facing this situation may eliminate OT pay by using more part-time employees or imposing flexible hours, he adds.

Many employers also are converting prior independent contractors to employee status, Watson explains, but still paying them when there is work to do and not paying them when they’re not working. In some of these instances, she notes that “the employer may not know if they are exempt or non-exempt for a year until well into the year or at the end of the year. In that case, if they turn out to be non-exempt, they would have to be paid at least time and a half for every hour above 40 worked in a given week.”

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