These changes center on overtime calculations for your dealership’s exempt employees. Yes, I said exempt employees. You know, the ones that you put on salary regardless of the number of hours that they work? On March 13, 2014, President Obama signed a memorandum that ordered a complete review of the Fair Labor Standards Act (FSLA) rules that govern overtime pay calculations.
The president, by executive order, thus circumventing Congress, has instructed the FSLA to completely review and modernize what are perceived to be antiquated rules concerning overtime and an employee’s exempt status. And what this really means is that these new regulations could increase the cost of running your dealership and dealership roles to possibly change. So let’s get ready for these changes.
The Department of Labor (DOL) has not set the specifics of the coming changes. but the Secretary of Labor has given some insight as to what to expect. The DOL will be focusing on increasing the salary threshold, as well as refining the duties that would qualify an employee from being exempt from overtime. Some experts have estimated that the details and rollout will be completed this year.
Let’s leave our personal politics and related sentiment out of the equation: We need to familiarize ourselves with the scope and direction of this executive order in order to be compliant with the proposed changes. Paying overtime can be expensive, but what is even more expensive is dealing with the DOL and the FLSA, if you ever get audited and have to pay back overtime, fines and penalties.
Under the current regulations, two things must be satisfied in order to classify an employee as exempt from overtime. First, the employee must meet the salary test and be paid at least $455 per week, or $23,660 per year. The second qualification is the “duties test” to separate those exempt from those in overtime. Defining your employees by mere title and salary could get you into trouble, so please be careful. The guidelines for determining exemption status are very clear and can studied further on your own at: http://www.dol.gov/whd/overtime/fs17a_overview.htm.
The new proposed plans are gearing up, and some experts are saying that the $455 per week salary could be doubled. Other experts have estimated that it could possibly go up to $900 per week. These new changes could also put more emphasis on the duties of the employee and increase “white collar” activities to 50 percent or more. This could throw quite a few employees into the non-exempt category and thus qualify for overtime pay. For example, the $40,000-a-year parts manager that is a department of one could fall into this category and could qualify for overtime if the threshold jumps to over $769.00 per week.
The key for preparing for these changes is to make sure your job descriptions are up to date, realistic and valid. This applies not to just your current exempt employees but also for your non-exempt employees as well. Also, you should seek advice from legal counsel for those employees that are in the “gray zone.” Look closely at how you pay your service technicians. I have seen all kinds of pay plans for service technicians, and some include salary. In order to manage overtime more closely you may have to decrease compensation to limit overtime payroll expense in very small dealerships.
In addition to the cost of overtime you may need to have “managers” who do not meet all of the manager guidelines start punching a time clock to track their time. This is something that “managers” and other non-exempt employees may find demeaning and could cause dealership disruption.
The good news is that we have time to prepare for the imminent changes that are on the horizon regarding overtime payments to exempt or salaried employees. Once the Department of Labor announces the details of the new changes, there will be time for debate and comment before they are put into final place. Don’t be fooled and say this does not apply to the powersports industry because it applies to everyone doing business in the United States. Don’t be caught off guard. Be prepared!
Forrest Flinn, MBA, PHR, SMS has been in the motorcycle industry for nearly 20 years and has been a true student and leader serving in various capacities. He previously worked as an implementation consultant for Lightspeed and as a general manager with P&L responsibility for a large metro multi-line dealership. Currently Forrest is the managing partner and chief visionary for a consulting firm that specializes in outsourced accounting, human resources, social media strategy, dealership operations consulting and Lightspeed/EVO training.