(By: Dr. Diane Specht, MST HR Solutions Consultant & Educator)
According to the United States Department of Labor or DOL (2016), the middle class salary/exempt worker who earns less than $47, 476 will qualify for overtime pay on December 1, 2016. Prior to this date, the Fair Labor Standards Act (FLSA) or the overtime rule applies to workers who earn $23,660 or less. The DOL (2016) explained that “the final rule does not make any changes to the duties test for executive, administrative and professional employees” (para 3). According to The White House, Office of the Press Secretary (2016) if you “primarily perform executive, administrative, or professional duties” (para. 7) you do not qualify for the overtime protection rule. Therefore, “a limited number of occupations are not eligible for overtime pay (including teachers, doctors, and lawyers) or are subject to special provisions” (The White House, Office of the Press Secretary, 2016). Sounds confusing? Well, it is confusing and there are several different options for paying an employee earning $47, 476 or less under this new FLSA or overtime protection law.
The United States Department of Labor (DOL) tried to explain the new overtime rule by creating an animated video using two hypothetical employees, one named Mattie and the other named Sam (https://www.dol.gov/featured/overtime/). As the DOL (2016) video demonstrated, companies will have to decide between paying the overtime to their salary exempt employee making $47, 476 or less—which the video demonstrated as “Mattie” or divide the work among other employees in the company to ensure that the employee works only 40 hours a week—which the video demonstrated as “Sam.” Consequently, companies are having to change their business plans for their employees to either a “Mattie” or a “Sam” overtime scenario by December 1, 2016.
What impact does choosing a Mattie or a Sam overtime scenario have on the workplace?
If a company uses the Mattie’s Scenario:
- Mattie is kept as a salary/exempt employee making a salary of over $47, 476 and she will not be paid overtime. This option also allows Mattie to bring home more money on a continuous basis.
- OR Mattie is kept as a salary/exempt worker and will be paid overtime (hourly salary plus half) for any work over 40 hours. This would mean that Mattie will bring home additional income, but this income would fluctuate.
The first dilemma that is encountered with keeping Mattie as an exempt employee is that the company will incur a higher payroll; however, the positive outcome is that Mattie will have a pay increase. The second dilemma for companies using the Mattie’ scenario will be how to correctly record the extra hours Mattie worked, if she is kept as a salary/exempt worker. Some business plans have employees working a straight schedule of 40 hours and this will be easy to capture hours worked overtime; however, there are some employees that work flex hours which will create a challenge for companies to document the hours the employees worked. Companies are going to have to quickly determine the business plan that they want to use and how they want their employees to document those hours that they work if they fall into the Mattie’s scenario.
If a company uses the Sam’s Scenario:
- Sam is demoted from salary/exempt to nonexempt status. Changing to nonexempt status hourly employee can create a negative point of view from the employee because they feel they are at a professional level at the salary/exempt level and the demotion to nonexempt status is moving them back to a basic employee level.
- Sam becomes an hourly employee and can work only 40 hours. Sam can pursue other options for career improvement and/or enjoy his free time.
Using the Sam’s scenario, a company can decide to change Sam’s status to be a nonexempt (an hourly wage earner) instead of a salary/exempt employee. There are several options for Sam and his employer to negotiate on how he would like to be able to keep his status similar as a salary/exempt worker but still meeting the requirements of a nonexempt worker. Weil (2016) highlighted several different methods of how this can be done. One option that could make Sam happy and meet the requirements of the law is to keep Sam’s pay the same—this is done by reducing his hourly pay rate and adding the overtime pay rate. This option works if Sam worked a constant amount of overtime hours each week. The second option is to have the Sam become a “blue collar” worker, which means that he would work less hours one week and then he could work overtime hours the next week. This options allows Sam to make about the same or possibly more, but his paycheck will fluctuate compared to being a constant amount each week.
As with all new laws, in depth review of what the law entails is necessary to ensure that every employee is correctly compensated. Now is the time to review every employee status and determine if you want them to be a “Mattie” or a “Sam.” If you have questions, please review the United States Department and Labor “Wage and Hour” web site https://www.dol.gov/whd/overtime/final2016/faq.htm#8 for additional understanding of the new overtime rule that will occur on December 1, 2016.
United States Department of Labor. (2016). OVERTIME: It’s about time. Retrieved, May 26, 2016, from https://www.dol.gov/featured/overtime/
The White House, Office of the Press Secretary. (2016, May 17). FACT SHEET: Growing middle class paychecks and helping working families get ahead by expanding overtime pay [Press release]. Retrieved from https://www.whitehouse.gov/the-press-office/2016/05/17/fact-sheet-growing-middle-class-paychecks-and-helping-working-families-0
Weil, D. (May, 2016). Plenty of options with the new overtime rule [Web log]. Retrieved from https://blog.dol.gov/2016/05/18/plenty-of-options-with-new-overtime-rule/
Dr. Diane Specht has her Ph.D. in Education with a specialization in Educational Technology. Dr. Specht is a Georgia high school educator as well as a consultant for MST HR Solutions. She merges her career technology education (CTE) teaching experiences with business hot topics to provide a different perspective and knowledge base of what are major concerns in the educational arena and the business world. Teaching and preparing the youth of today provides the insight of how the new generation needs to conform to the dynamic global society and how the global society needs to adjust and embrace the future workforce.