Editor's note: This version updates a delay to the overtime rules' implementation because of legal challenges.

If you employ salaried executive, administrative and professional workers making less than $47,476 a year, or if you are one of these employees, listen up: Your life may be changing in a big, and perhaps costly, way if new federal overtime rules end up going into effect.

The rules were scheduled to kick in Dec. 1, but a federal judge in Texas issued an injunction in late November as business groups and a coalition of 21 states argue in a lawsuit about why the pending rules should be blocked.

The federal overtime rule would essentially double the number of salaried “white collar” workers who qualify for overtime. Currently these workers are exempt from overtime pay if they make more than $23,660 a year. Under the new rule, the annual salary ceiling will increase to $47,476.

Wilmington-area business leaders and employment specialists offer several ways of alerting employers and employees about the potential changes resulting from the rule’s implementation and offer ways to respond to it. Ignoring the rule is not one of those ways.

“We have been working on spreading the word to our client base, but we do not believe that the majority of business owners are aware of the change nor the potential impacts they could face with non-compliance,” said Adam Shay, managing partner of Adam Shay CPA, PLLC.

Dalton Green, a partner practicing employment law at Hedrick Gardner Kincheloe & Garofalo’s office in Wilmington as well as president-elect of the Lower Cape Fear Human Resource Association, an affiliate of the Society for Human Resource Management, said that while the law was intended to create a better living and working wage for these workers, she’s not certain it will have this desired effect. She said a lot of employers can’t absorb the cost of having a larger part of the workforce qualify for overtime.

There are ways for employers to address the issue, according to the N.C. Restaurant & Lodging Association.

These are:
• Raising the salary of an employee whose salary isn’t far below the new threshold of $47,476 so he or she meets the new threshold and continues to be classified as exempt.
• Reclassifying currently exempt employees whose salaries fall well below the new threshold and who work not more than 40 hours per week to nonexempt.
• Reclassifying currently exempt employees whose salaries fall well below the new threshold to nonexempt and reduce their hours to a maximum of 40 hours per week so they do not acquire overtime. This option may require businesses to reconfigure workloads or hire new employees.
• Reclassifying currently exempt employees whose salaries fall well below the new threshold as nonexempt, begin tracking their hours and pay them time-and-a-half for hours worked above 40 hours per week.

Employees who believe they will be impacted by the law – for instance, those managers who work more than 40 hours a week and make less than $47,476 – are advised to have what may be a difficult, but certainly necessary conversation with their supervisor to determine what changes to their schedules or hours may be on the horizon so they can plan accordingly.

One thing is for certain. Ignoring the law won’t make it go away. And there are penalties if employers can’t prove they acted in good faith when they didn’t follow the law by misclassifying employees or not paying overtime, for instance.

Under the Fair Labor Standards Act (FLSA), employers in violation of the law may be responsible for paying any back wages owed to their employees, as well as additional amounts in liquidated damages, civil money penalties and/or attorney fees, according to the DOL website.

“Employers need to be careful – regardless of salary levels – that exempt classified employees are truly exempt under the administrative, professional, computer, outside sales or highly compensation exemptions,” Shay advised. “Employers need to implement a formal time tracking system. If challenged on time, it is up to the employer to prove their case, so we recommend some sort of computerized – web-based is fine – time tracking system.

“Be careful how you implement time tracking within a company,” he continued. “If some employees are required to track time, and their peers are not, they may be able to figure out who is making more than they are.”

Dalton said employers shouldn’t stick their heads in the sand on the issue or assume what they do doesn’t matter because the problems that can result if they misclassify employees or don’t pay overtime are “vast.”

“I think it’s very, very important,” she said, “to make sure that employers are looking at their situation on a case-by-case basis.”

The Background

In March 2014, President Obama signed a Presidential Memorandum directing the Labor Department to update the regulations defining which white-collar workers are protected by the FLSA minimum wage and overtime standards.

The memorandum states the regulations regarding overtime exemption requirements, particularly for executive, administrative and professional employees were outdated, and because of this, “millions of Americans lack the protections of overtime and even the right to the minimum wage.”

The Department of Labor issued its final rule in May. The last time it updated the white-collar overtime regulations before that was in 2004.

Legal Challenges Pending

In September, a group of 21 states, including South Carolina but not North Carolina, filed a lawsuit challenging the new rules.

The states asserted the new rule would force many businesses to unfairly and substantially increase their employment costs. In addition, the U.S. Chamber of Commerce led a coalition of businesses that also filed a legal challenge to the rule.

It is that consolidated case that was heard in November in Texas.

“We have heard from our members, small businesses, nonprofits, and other employers that the salary threshold is going to result in significant new labor costs and cause many disruptions in how work gets done,”
Randy Johnson, senior vice president of labor, immigration and employee benefits for the U.S. Chamber, said on the group’s website.

The new rule also establishes mechanisms for automatically updating the salary and compensation levels every three years to maintain them at the levels set in this rulemaking.

Find Out More

The U.S. Department of Labor has a fact page on the new rule at dol.gov/whd/overtime/fnal2016.