New overtime rules will affect 149,000 in Ky
Business groups aren't happy about new federal regulations that could force employers to boost the pay of an estimated 149,000 Kentuckians.
Beginning in December, salaried employees earning $47,476 or less a year must be paid time-and-a-half for working more than 40 hours in a week. The previous threshold was far less – $23,660. The change is expected to directly impact thousands of young administrative and management employees who pull long shifts but are not classified as hourly employees under federal wage and hour laws.
The U.S. Department of Labor says its new rules make more than 4 million U.S. workers eligible for overtime pay. An analysis of state-by-state numbers by the Economic Policy Institute, a pro-labor and liberal-leaning group, predicted that about a fourth of Kentucky's salaried workers – 149,000 – could benefit from the new rules. In Indiana, roughly 248,000, also a quarter of the Hoosier salaried workforce, would be impacted.
The new rule raises the threshold from $455 per week to $913 per week.
"Everybody is freaking out a bit now because it's such a significant change," said Amy Newbanks Letke, the chief executive and founder of IntegrityHR, a human resources consulting and outsourcing firm in Louisville.
A number of companies signed up for Integrity's webinars on the new rules, an indication many are looking for help on the basics, Letke said.
Several of the region's largest employers – General Electric, UPS, Humana and Ford – already have sizable hourly workforces and pay rates for salaried workers above the threshold, so the small- and medium-sized local companies are most affected.
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Greater Louisville Inc., the region's chamber of commerce, wrote the Department of Labor last September to say that the rules would "send shock waves" through the local economy and put more than 70,000 salaried employees back on hourly wages at a cost of more than $19 million a year. It also said that it would limit business owners' flexibility to provide benefits, set schedules and offer incentives to attract talent.
GLI said this week that the department made some positive revisions before writing its final rule, but it "still makes the critical errors of limiting flexibility, ignoring regional distinctions in compensation, and demanding full implementation by Dec. 1."
The group had urged a phase-in over three to five years. Banks, staffing and insurance companies and local manufacturers were among the 50 companies that signed the letter.
The Courier-Journal contacted a worker at a local nonprofit and general manager of a fast-food pizza business. Both felt uncomfortable commenting and referred a reporter to supervisors.
A sorority in the region contacted Jan Michele West, a partner with Goldberg Simpson who specializes in employment and business law, to ask how to handle a house manager who lives at a sorority house. The woman is salaried and being paid $35,000 to $40,000-plus. The organization didn't want to raise her salary over the $47,000 threshold – but it also was concerned about running up overtime if it switched her to an hourly rate, West said.
"There is a lot of confusion," particularly about classifying employees, she said.
The policy institute's report shows that the changes could have the biggest impact on workers who are African American or Hispanic, those ages 16 to 24, and who are less educated with a high school diploma or some high school education. Leisure and hospitality businesses were among those expected to be most affected nationwide.
The institute pointed out that it's high time the rules addressed the realities of the workplace. They "were established to make sure that no one but higher-level workers with control over their time or tasks works overtime without getting paid for it." But changes in 2004 made it easier to "deprive" many lower-level workers of OT by tweaking their job descriptions, the EPI report said.
Because some employers pushed the limits of the law, it led to "widespread noncompliance and misclassification" that new rule should address, the group said.
In Louisville, where the median income is $42,500, the changes are bound to hit hard on nonprofit groups and small businesses, Letke said, which should force them to devise strategies to suit their circumstances.
Like West, she predicted that many companies will have to trim their payrolls or outsource work to stay within the rules. "It's a real concern for businesses that are super price sensitive," Letke said.
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As a former owner of several Qdoba fast-casual restaurants in Louisville, Don Doyle doubts the change will hamper restaurants and other businesses because many already have addressed the matter. His company had several salaried assistant managers before he sold his restaurants back to the parent company three years ago.
Amid concerns about the requirement to demonstrate that those employees spent 50 percent of their time supervising others – when they often jump in on many tasks during the day – they converted them to hourly pay.
They calculated their standard week was 50 hours, then they used a rate with 40 hours plus 10 hours of overtime pay at time and a half to determine each person's hourly rate. "We didn't increase our costs" because assistant managers were paid the same as when they were salaried, Doyle said.
"In the final analysis," he said, "I don't believe it's going to cause a big disruption."
Reporter Grace Schneider can be reached at 502-582-4082 or gschneider@courier-journal.com.
Provisions of the final rule
• Sets the salary level required for exemption at $47,476 a year ($913 a week).
• Establishes a mechanism for salary and compensation levels eventually to increase every three years.
• The duties test, which is used to determine what job duties qualify workers for exempt status, remains unchanged.
• Highly Compensated Employee (HCE) compensation requirement is now $134,004 per year.
• The effective date is Dec. 1.
For details, see https://www.dol.gov/whd/overtime/final2016.
Source: U.S. Department of Labor