New Overtime Compensation Rule: Digital Work Implications

Overtime compensation

President Obama and the Department of Labor have announced a new overtime compensation rule (effective December 1, 2016) that will make millions more workers in the United States eligible for overtime compensation. This article adds a digital dimension to the discussions about the change and offers some guidance to employers about what the current and proposed Fair Labor Standards Act (FLSA) requirements mean for them (as well as for managers and employees).

On November 22, 2016, a federal judge in Texas issued a nationwide injunction against this regulation

Learn more here

On May 18, 2016, President Obama and the Department of Labor announced a new rule updating the Department of Labor’s overtime regulations. The rule takes effect December 1, 2016. When this change was proposed in June 2015, I was struck by three things as I read about and contemplated the news:

  1. Most of the discussions in the articles I read focused on what I would call “earth-based work” – namely, the work people do when they are physically present at a location. Little to no attention was paid to the work people do remotely – specifically, the ways in which they may engage with their organizations, co-workers, bosses, clients and others using social and digital technologies.
  2. There was also a predominant focus on blue and pink collar workers, with virtually no discussion about white collar workers who could be affected by the changes. Given the increase in the salary threshold for overtime compensation (more on that below), many people who have previously been classified as exempt under the Fair Labor Standards Act, or FLSA, may now be covered.
  3. Many employers – and especially managers – have a limited understanding of the FLSA and may not be in compliance with its current requirements, let alone be prepared to meet the new standards. For those already in the gray zone in particular, things are about to get a lot more complicated.

In this article I’d like to highlight the digital implications of the new overtime compensation rule and offer some guidance to employers about what the new FLSA overtime compensation requirements mean for them (as well as for managers and employees).

A Primer on the FLSA

The Fair Labor Standards Act is a US federal law originally passed in 1938. According to the Department of Labor, the law’s purpose is to establish “minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments.” The law has been amended numerous times since its original passage, the most recent of which was in 2007 (to reflect an increase in the federal minimum wage).

Many people are familiar with the somewhat counterintuitive and sometimes confusing terms exempt and nonexempt. These terms basically refer to whether the overtime rules in the FLSA apply to employees. If employees are classified as nonexempt, the law applies to them. If they’re classified as exempt, it doesn’t. Generally speaking, “nonexempt employees must receive overtime pay for hours worked over 40 per workweek at a rate not less than one and one-half times the regular rate of pay.”

The current criteria for determining whether an employee is exempt are complicated, but essentially a person is currently not eligible for overtime compensation if:

  1. His/her compensation is defined as an annual or weekly salary (versus an hourly rate);
  2. That salary equates to at least $23,600/year; and
  3. His/her job duties meet certain executive, professional, or administrative standards (e.g., manages others as a primary job duty, is a “learned professional” like a lawyer, or provides staff support on “matters of significance,” like human resources).

The New Overtime Compensation Rule, in a Nutshell

The rule change will raise the salary threshold to $47,476 a year (or $913 a week), which represents “the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region.” The threshold will be automatically updated every three years, beginning January 1, 2020.

The change affects salaried workers currently earning between $23,600 and $47,476 per year. It does not affect hourly workers, as they are already considered non-exempt regardless of their base wages.

Click here for complete details on the rule change and additional resources.

The Overtime Compensation Rule’s Digital Implications

For most of the past eight decades since the FLSA was passed, “work” required people to be physically present in a given location. As digital technology has become more fully integrated into our personal and professional lives, however, “work” can be done virtually anywhere and at any time by almost any type of worker.

Employers have had to increasingly recognize that employee communications via channels like email, text, social intranets and even public social media channels may be considered “compensable time” unless the communication meets a de minimis standard. Three factors determine whether work is de minimis (source):

  1. The practical administrative difficulty of recording the additional time
  2. The aggregate amount of compensable time
  3. The regularity of the additional work

While no bright-line rule exists, work taking less than 10 minutes is generally considered de minimis. So, for example, the time it takes for an employee to have a quick text exchange with her supervisor about her work schedule or a deadline during off-duty hours is not considered compensable. If that employee responds to a series of emails and/or logs into an internal system to help troubleshoot a problem and/or answer work-related questions, however, then she is likely entitled to be compensated for that work.

It’s important to note that employers don’t “get a pass” when time worked isn’t specifically recorded or an employee voluntarily engages in work and doesn’t expect compensation. The law decides compensability, not managers or individual workers.

When the proposed new salary threshold goes into effect, things will get a lot more complicated. For example:

  • Many telecommuters and other staffers who routinely work remotely and have previously been classified as exempt may now be classified as non-exempt.
  • Ambitious entry-level professionals in many fields who want to go above and beyond the call of duty to demonstrate their value may work remotely on nights and weekends. This time will be considered compensable if they are no longer classified as exempt staff.
  • Various social media and community management roles require people to work beyond the typical 9 to 5 workday to meet the digital demands of a company’s customers and others. These extended hours will now be considered compensable if their employment classification changes from exempt to non-exempt.
  • Individuals involved in Employee Advocacy and Brand Ambassador programs who engage via social media outside their normal work day may also be engaging in compensable work if their classification changes to non-exempt.

Recommendations for Employers

The first thing employers should do is consult with their human resources and legal counsel to determine whether their programs, policies and practices are in compliance with current FLSA requirements and to better understand the implications of the rule change. FLSA overtime rule resources from organizations like the Society for Human Resource Management can also be useful.

Preparing for the change should include activities like:

  • Communicating with managers, supervisors and employees about the pending change and its implications (before, during and after the impact is felt).
  • Conducting an assessment to determine which positions may be reclassified as non-exempt based on the rule change, and estimating what the potential costs of reclassification (or salary adjustment) might be.
  • Revising policies, programs and practices as needed to conform to FLSA rules.
  • Determining whether new methods and systems are necessary to track hours worked for reclassified workers and implementing them.
  • Educating supervisors and managers about FLSA requirements, emphasizing the importance of their role in maintaining compliance. It may also be necessary to provide comparable education for employees who will be reclassified as nonexempt workers when the new rules take effect.

If I can assist you and your organization in any way with this transition, please don’t hesitate to ask!

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