A new U.S. Department of Labor overtime pay rule, finalized last May, raises by 100 percent (to $47,476 from $23,660) the threshold at which employees can qualify for the so-called “white collar” exemptions from overtime pay.
To take effect Dec. 1, the new rule also requires that the salary threshold be automatically adjusted every three years.
The rule will benefit insurance brokerage and advisory firm staffers — administrative assistants, para-planners, marketing and compliance professionals, among others — who fall below the new pay level. Salaried employees earning less than $47,476 annually, and who work over 40 hours per week, will be entitled to time-and-a-half overtime pay.
To learn more about the rule’s impact on employers and how best to prepare for it, LifeHealthPro interviewed Jack Dewald, president of Memphis, Tennessee-based Agency Services Inc.
Dewald is co-presenting a morning workshop on the rule at the National Association of Independent Life Brokerage Agencies annual meeting in Dallas. Dewald is also past chairman NAILBA and of the LIFE Foundation. The following are excerpts.
LHP: What concerns do you have about the new DOL overtime pay rule?
Dewald: The rule makes no adjustment for the cost of living in different parts of the country. A New York City-based administrative assistant earning $47,000 per year isn’t making enough to live on. But in Memphis, Tennessee, where I’m located, that’s a fair wage.
Yet insurance brokerages, no matter where they or their staffers are based, will now have to pay time-and-a-half to salaried employees previously exempt from the overtime pay rule. The alternative is to keep them exempt by immediately boost their salary to the $47,474.
That’s a hefty increase for someone who was previously earning $23,000 a year. A doubling of pay may be too burdensome for the employer. To boot, you’ve now got to document hours worked for newly non-exempt employees.
That could be a problem in situations where you have people who need to stay after business hours to get the job done. Now you may have to tell them, “You can’t stay longer because I can’t afford to pay you overtime.”
While raising employees’ base salaries to maintain their exempt status, employers may also cut back on variable compensation. (Photo: iStock)
LHP: Why else should the rule be an issue for NAILBA members?
Dewald (pictured below): Employers will have to decide how to handle variable compensation. Consider, for example, an employee earning a base salary of $36,000 a year and incentive pay of $60,000, bringing total comp to $96,000. As the DOL rule only counts 10 cents of variable pay on the dollar when determining eligibility for overtime, the department will recognize $36,000 plus $6,000 or $42,000. That’s $5,000-plus shy of the amount needed qualify for exempt status.
Most employers won’t raise base salary from $36,000 to $96,000. What they may is say, “Okay, your salary is going to $47,474 and we’re going to cut back your bonuses.” This is the kind of adjustment that life insurance brokerage execs will have to make.
LHP: The Financial Services Institute also believes that the rule is badly crafted. As quoted in an earlier LifeHealthPro story, FSI noted that “the proposal will raise costs in small businesses, like those run by financial advisors while doing nothing to streamline a complex and outdated maze of overtime rules.” Do you share that view?
Dewald: Yes. Organizations like the National Federation of Independent Businesses and the U.S. Chamber of Commerce have also come out against rule for the same reason.
LHP: In the wake of Donald Trump’s election victory on Nov. 8, do you anticipate the rule will be gutted?
Dewald: I doubt it. The DOL chose Dec. 1 as the implementation date, I believe, because they could get the rule in play before the new president takes office. Technically, the rule could be reversed through executive order. But once in force, recalculating pay and the employee’s exemption status could be problematic for employers.
LHP: I’m also aware of a Regulatory Relief for Small Businesses, Schools and Nonprofits Act, or HR-6094. The bill, which cleared the House in late September, would postpone the DOL’s rule implementation until June 1, 2017. What’s the current status of the legislation?
Dewald: The bill remains to be enacted. Again, unless and until the rule is administratively or legally blocked, it will be enforced — whether in December or next June. I think it would be foolish to not to prepare for the rule in the belief that Congress, the courts or the new president will undo it.
To comply with the rule, employers will need to ensure that employee handbooks and businesses processes are consistent, says Jack Dewald. (Photo: iStock)
LHP: Apart from attending the NAILBA session, what might that preparation entail?
Dewald: They need to ensure that employee handbooks and businesses processes are consistent. They also should understand that the rule extends liability beyond the business itself: An employee can take legal action against not only the employer, but also the business owner personally.
So business owners darn well better have a process for handling overtime pay — as well as financial protection to cover potential claims. Some of them will have what’s called Employment Practices Liability Insurance or EPLI. Some of these policies cover wages; others don’t.
LHP: Do you envision also that independent life brokerages agencies and advisors will have to beef up investments in software or staff to comply with the rule?
Dewald: Yes. My company recently bought software that links to our payroll system and tracks work time based on when employees sign into their computers. Before, we just kept records on paper. For many businesses, manual record-keeping will no longer tenable. The bigger your company, the more streamlined and consistent your process will have to be.
You’re invited to join us on Facebook.