From time to time, I talk with a retired HR executive who stays up to date on significant HR related issues. Lately, he’s been working on the new Department of Labor overtime rules, and I found his comments significant as we work towards the new rule’s deadline on December 1, 2016.
He said the rules, at first reading, seem pretty simple and straightforward, and he expects that many businesses are confident that they understand their options for compliance—either raise the employee’s pay or convert everyone to hourly employees. Not so fast, he cautions. Companies that don’t take a universal look at the rule and explore all options for compliance could cost themselves significantly for years to come.
Getting this right—complying with the new DOL rule—is extremely important. The changes companies make in response to these regulations will more than likely be in place for several years to come—these include changes to employee status, compensation, etc. Additionally, companies must prepare for the possibility of a future audit. Whenever there is a new rule or regulation, it opens the door for the regulatory body to conduct more compliance audits. In this case, the new regulation provides the DOL with new focused guidelines that many companies will struggle to implement correctly. This opens the door for significant penalties and fines for both current and past non-compliance.
I don’t know if you have participated in a DOL audit, but the nicest word my HR friend could use to describe them is strenuous. Full audits typically result in a request to provide all HR documents for the previous three years. Think about your ability to comply with that request while you are running the day-to-day operations of your business. Most businesses find that strain to be significant.
Apart from the procedural strain the audit can bring, the findings can also be extremely damaging. In addition to back pay, fines and penalties, the reputational damage to employers found to be mishandling employee matters can impede on recruiting and sourcing talent. For many, the cost of a limited workforce far outweighs the monetary impact of fines and penalties.
Some businesses say they’ve never been audited before, so they don’t expect an audit now. Our HR consultant, however, says the new regulations change the enforcement landscape. Significantly more employees will be impacted by the new regulations than before. On top of that, employees will be more informed on the new rules than ever before—particularly through news/social media outlets and legal ads informing them of these new rules and employee options for enforcement. Just one complaint from a disgruntled or terminated employee can subject a company to a DOL audit—regardless of whether the complaint is true. Litigation in our society is easy, and even if the charge is unfounded, you must respond.
How can you prepare for the coming change?
- Consider ALL the requirements for exempt employees. The new salary levels are important, but your employees must also pass certain duties tests to qualify for exemption. These duties have been part of the regulations for years and were not changed with the current regulation – however, we’ve found these tests are often ignored or misapplied. Not reviewing these tests subjects the company to the same risk as not reviewing exempt employee compensation.
- Treat your employees fairly. If you make changes to the pay structure, explain the changes and allow employees to ask questions about their pay, seniority, benefits and other concerns. Consult your employees ahead of implementing changes to make sure you’ve considered their thoughts.
- Keep your house in order. Do what you can to clean up your old HR records, and put procedures in place to create complete and accessible files going forward.
- Make sure you address the new rule and are in compliance before December 1, 2016. If you are unfamiliar with the new regulations or want to explore additional options for compliance, consult a service provider who can help.
If you need more information, you might find a recent HORNE publication, New Employee Exempt Rule: Substantial Changes on the Horizon, helpful as you make your plans. Of course, if you’d like to discuss your situation with our experienced team, feel free to give us a call.
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