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Despite Legal Uncertainty, Employers Prepare for New Overtime Rules

YOUNGSTOWN, Ohio — Although a federal judge in Texas has issued a temporary injunction blocking the U.S. Department of Labor from implementing new overtime rules Dec. 1, local employers are preparing for them with acceptance and varying degrees of comprehension, say accountants and lawyers interviewed over the last two weeks.

The federal lawsuit filed by 21 states, including Ohio, 50 business associations and the U.S. Chamber of Commerce seeks to rescind the rule and the judge, as of this posting, has not issued his final ruling.

During his campaign for president, Donald J. Trump decried the scope and complexity of regulations that govern small business. He told a reporter he “would make an exception [from the Fair Labor Standards Act] for small businesses but it could take at least until spring before Trump’s secretary of labor could repeal or modify the overtime regulations.

The Labor Department’s press releases about having a widespread impact that will result in significant pay raises or more personal time for the 4.2 million salaried employees affected or creating jobs are at odds with what two local lawyers who practice labor law are finding.

The employees affected have supervisory duties.

The government says the 4.2 million directly affected will share in an extra $1.2 billion in raises, that 56% are women, that 82% who benefit have attended college (53% have a baccalaureate or post-graduate degree) and 2.5 million children have at least one parent who will benefit.

Indirectly affected are 8.9 million salaried workers: 3.2 million blue-collar, 5.7 million white-collar. Of the white-collar workers, 732,000 are eligible for overtime, Labor says, “but their employers don’t recognize them as such and so do not pay them the overtime.” As the understanding of the rules hits home, Labor expects them to eventually benefit.

Martin J. Boetcher, a partner in Harrington, Hoppe & Mitchell LTD, Youngstown, says 132,000 workers in Ohio are affected.

Both lawyers, Boetcher and Tim Jacob, and both CPAs, Gene Byler and Tim Petrey, interviewed for this article noted the incoming Trump Administration can reverse or modify the Department of Labor raising the threshold to $47,476 from $23,660 a year for most supervisory employees on salary. They must be paid time-and-a-half for any hours they work beyond 40 per week; they cannot be compensated later with time off.

Jacob is a partner in Manchester, Newman and Bennett LPA, Youngstown; Byler a principal in Byler, Wolfe, Lutsch & Kampfer CPAs Inc., Salem; and Petrey is managing partner at HD Davis CPAs LLC, Liberty Township.

The Labor Department says the new final rule will “put more money into the pockets of many middle-class workers – or give them more free time. … Employers have a choice. They can either increase their employees’ salaries to at least the new salary threshold, pay workers the overtime premium for extra hours, or limit their work to 40 hours a week.”

Employers have grumbled about Labor more than doubling the threshold – the previous update occurred in 2004 and going forward the new rules must be updated at least once every three years.

The regulations, part of Fair Labor Standards Act passed during the New Deal, affect salaried employees in the public, private and nonprofit sectors with exceptions for physicians, lawyers and teachers. Industries in the private sector most affected are the restaurant and retail stores, the lawyers and CPAs agree, and the nonprofits will suffer most.

Local governments are complying with the new rules as reflected by the Columbiana County commissioners granting raises Nov. 16 to three supervisors in that county’s Department of Job and Family Services. While 13 qualify for raises, Director Eileen Dray-Bardon told commissioners, she recommended only three be accorded raises of between 4.5% and 9%.

It would be less expensive to pay overtime because the 10 are not close enough to the threshold, she said.

Likewise, Farmers National Bank and Home Savings and Loan Co. will pay overtime rather than grant pay raises, Amber Wallace and Cynthia M. Cerimele say.

Wallace is senior vice president of marketing at Farmers, Cerimele vice president and director of human resources at Home Savings.

The regulations, Cerimele says, require her and her staff to track overtime and keep records. Under the old regs, “There were no recordkeeping requirements for exempt employees,” Cerimele says. “But that changes.” The new regs led her and her staff to review the duties of the head tellers and branch managers.

The lawyers and CPAs all noted how the recordkeeping will add to a business’s record-keeping expense. “Recordkeeping is going to be a problem [for all small businesses],” Jacob says. “It’s already a burden.”

Keeping record of overtime “can be a simple as [an employee filling out] a time sheet,” Jacob says. “It must be reliable” for when Labor Department auditors visit.

Employers “will have to track overtime more diligently,” Petrey says, instead of simply having a good idea of how many hours an employee puts in. Most employers do, he says.

“Some [employees] will be given raises to avoid the cost of tracking hours,” he says. Regardless, the expense of tracking overtime will be passed onto customers.

The glitch will be people traveling to work assignments. If they drive or fly on weekends – time they aren’t paid for – should they start being paid overtime for those hours spent in transit?

While the Labor Department touts pay raises and more free time, Jacob thinks it’s more likely that many salaried supervisors who fall below the threshold will be informed they’re being reclassified as hourly employees. This will result in morale problems for two reasons: While they’ll earn the same annual compensation, their hourly rate will be reduced. And second, “When people hear they’re no longer on salary, they don’t take it well.”

If a salaried supervisor is close to the threshold, Jacob would advise the owner to “raise them up.”

“A lot of people work overtime,” Petrey says. “Most owners try to compensate fairly.” So either closing the gap or paying overtime “won’t cost as much as some people think,” he says.

Unchanged is the 40-hour threshold. Whether an employee works four 10-hour days, five eight-hour days or four hours two days and eight hours four days, he doesn’t qualify for overtime unless he works more than 40 hours.

One challenge for employers is having the ability to offer compensatory time taken away. “It’s going to be really tough to offer flextime,” Petrey says. “Somehow they’re going to have to adjust. We need some modification to allow for it. It’s important to both employer and employee.”

Managers of fast-food restaurants and department managers at retail stores paid less than $913 a week are the two groups that often work beyond 40 hours and aren’t paid for the extra hours they put in, Byler says. These managers often work beside the employees they supervise, he notes.

“Maybe we’ll see more part-time workers hired,” he says. He suggests it’s more likely part-time employees will see their hours increased and more duties reassigned to them.

Where private sector employers can raise their prices, the nonprofit sector cannot. Jacob points out. “Most of their income comes from government grants and [private] donations,” he says. “These people are not in it for the money. The employees buy into the mission, work hard and do a lot of work, put in a lot of extra time.”

They’re least able to afford the recordkeeping and “already are paying [their staffs] as much as they can,” the lawyer says. “They can’t afford to go too much higher,” so closing the gap to meet the new threshold will create more of a strain.

Their first option is “more appeals for volunteers,” Jacob says. The drawback is it takes a while to train volunteers. Not only that, turnover is high.

Published by The Business Journal, Youngstown, Ohio.