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The new OT rules: You’ve got questions; we’ve got answers

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in Compensation and Benefits,HR Management,Human Resources,Leaders & Managers,Management Training

If you're like most HR professionals, you've been scrambling in recent months to pull your organization in line with the Labor Department's new rules defining which employees are eligible for overtime pay.

Summary: Employees earning below $23,660 annually ($455 a week) now automatically qualify for overtime pay, and almost any employee earning more than $100,000 annually is now not eligible for overtime. For employees earning between those two amounts, the new rules rewrote the confusing "duties tests" that help you decide who qualifies for overtime and who's exempt.

Those regulations have sparked many questions. Here are answers to three of the most common questions we've received:

1. What's a 'safe-harbor' policy, and does our organization need one?

Suffice it to say: You need it.

The new regulations create a defense for employers who have made improper deductions from an exempt employee's salary. To take advantage of the defense, you must adopt a safe-harbor policy that bans improper deductions and includes a complaint mechanism.

The U.S. Labor Department issued a model safe-harbor policy. If you haven't already, adopt that policy immediately. Find it at www.dol.gov/esa/regs/compliance/ whd/fairpay/modelPolicy_PF.htm.

2. What's the best way to change someone from exempt to nonexempt?

Whenever you reclassify an employee as nonexempt, you'll likely encounter one of two reactions:

1. Some employees, especially those who view themselves as "management", will view a reclassification as a demotion or an insult.

2. Others may use reclassification to complain that they should have received overtime for as long as they have been employed.

To soften these reactions, consider "selling" reclassification by explaining that the organization has changed the way it compensates certain employees in an effort to recognize their contributions.

Draw the spotlight away from reclassifications by implementing them at the same time as other organization changes, such as new fringe-benefit programs.

In any event, don't say the organization is changing a classification to comply with the wage and hour law. Doing this would effectively invite employee complaints.

3. Can we avoid paying overtime to an employee who doesn't satisfy one of the white-collar exemptions?

Although all your nonexempt employees must receive overtime pay whenever they work more than 40 hours in a workweek, you should be aware of two "loopholes":

Independent contractors. In some cases, it may be appropriate to reclassify employees as independent contractors, who are obviously not due overtime pay. Such a reclassification won't be possible in most cases, but it's worth looking into. Remember that titles don't matter. What matters is whether the "economic realities" demonstrate that a worker may properly be classified as a contractor.

Salaried, nonexempt. Many employers are unaware that some employees can be properly classified as "salaried nonexempt."

Specifically, Labor Department rules say a nonexempt employee whose hours fluctuate week-to-week can be paid on a salary basis if an agreement exists between you and the employee that he or she will receive overtime pay equal to one-half his or her regular rate.

Using a "salary-plus-half-time" calculation, instead of the traditional calculation, means that the employee will earn less overtime pay. Indeed, under salary-plus-half-time calculation, an employee's regular rate grows smaller for each hour worked beyond 40 hours a week.

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