On May 18, 2016, the Department of Labor (DOL) released the final rule increasing the salary threshold for overtime exemption to $913 per week (totaling $47,476 per year). This means many employees currently classified as exempt from overtime will now have to be reclassified as non-exempt and be paid overtime. The new regulation is effective December 1, 2016.
Many small businesses, such as property management companies, are unaware of these requirements, or think the requirements don’t apply to them. However, if you are an employer whose annual sales total $500,000 or more or are engaged in interstate commerce – this regulation applies to you. Please note that the courts have interpreted the term “interstate commerce” very broadly so that these regulations apply to most workplaces. Let’s review the problems that the new regulations can cause, as well as suggestions as to how your office can comply.
In a typical property management office, you have employees who would currently be classified as salaried – exempt from the overtime regulations. These employees may be an office manager, property manager, or a maintenance supervisor that work many hours (often more than 40 hours per week) to keep the business running smoothly. Many of these employees make under the new threshold of $47,476 per year and will now have to be paid for all overtime hours worked. Most of these employees enjoy the flexibility of being salaried and the distinction that typically comes with that classification.
Before determining how you will comply, look at the potential problems first:
- Many employees will feel that being changed from salaried to hourly is a demotion.
- Employees lose flexibility – i.e. an employee might work fewer hours one week, but make up hours during the next week. As an hourly employee, this is not possible since any hours spent working must be compensated within that workweek.
- Can your employees accomplish all their assigned work within a 40-hour workweek?
There are several ways to make sure your business complies with this rule and they will all affect your employees one way or another.
- Raise employee salaries to maintain their exempt status. This might make sense especially for those employees whose salaries are close to the threshold.
- Convert salaried employees to hourly and track their time. This may potentially end up costing your business more if you don’t limit overtime worked by your employees.
- Reclassify salaried employees as hourly, adjust their base pay to account for overtime. If this is done right, employees will earn the same amount they did before the change. This option might be the hardest sell to the employee as their hourly rate will go down even though they will be earning the same annual rate.
With these changes, some re-training will also have to take place.
- Employees will need to be trained on time keeping. As a salaried employee, they are most likely not used to keeping track of their time – especially accounting for lunches or other breaks.
- Employers will need to retrain themselves on how to work with a non-exempt employee. Any time worked must be compensated, so, if you are used to emailing, calling, or texting an office manager or maintenance supervisor after hours (and expecting a response), this time will now have to be tracked and paid. These types of interactions are typical in a property management office as after-hours requests from tenants and property owners are the norm.
- Employers may have to adjust assignments to account for the employee who will only be allowed to work 40 hours/week and used to work more.
Whatever actions your property management business decides to make, keep in mind the effective date of the new regulation is December 1, 2016!
Additional Note: The Fair Labor Standards Act (FLSA) is a federal regulation and some states have more stringent laws. Make sure you know your state’s laws as well as federal.