New federal overtime rules may affect law firms more in the advice they give than in any changes they make to their own operations.
New guidelines from the U.S. Department of Labor effective in December will push the minimum salary level to nearly $47,500 for many workers exempt from overtime rules.
The changes are having a big impact on mid-size businesses with middle managers, lawyers say. Non-profits, often with lower-paid staffers, are particularly hard hit by the changes.
Most law firms have few employees affected by the new rules, employment lawyers say. And lawyers – as employees – have always been completely unaffected by overtime requirements.
Unchanged in the new rules is a carve-out for three specific categories of professionals: doctors, lawyers and teachers. Lawyers are exempt from overtime pay requirements, regardless of how they’re paid or whether they meet the new salary level standard.
“The new regulations didn’t change any of the primary duty standards, so attorneys, managers and computer employees, if the firm is a large one, are still exempt,” said Charles McDonald, an employment litigation lawyer in Greenville, South Carolina.
“Outside of lawyers and senior administrative staff, pretty much everyone could be covered by the new overtime regulations,” said Marshall Wall, who practices in Raleigh, North Carolina. “But so far, we haven’t seen anyone who was exempt before the new rules came out and is now non-exempt due to the new salary requirements.”
Law offices could be forced to make some changes, most likely with office managers and similar staffers. But lawyers in the field say partners will be worrying more about how to advise clients than how to fix their own firms’ pay scales.
‘White collar’ rules
The changes confounding many business managers affect so-called “white collar” exemptions that apply to executive, administrative and professional employees. An estimated 4.2 million workers are affected, according to the Labor Department, including 119,000 in Virginia.
The agency more than doubled the minimum pay standard for exemption from overtime requirements for many employees, from $455 per week to $913 per week.
The new standard equates to an annual salary of $47,476. In essence, many businesses now will have to pay $47,500 to many administrative employees who normally work more than 40 hours a week in order to avoid having to pay time-and-a-half for overtime.
The changes take effect Dec. 1.
For mid-level managers overseeing a store or an outlying business operation, employers are looking at having to give substantial raises to avoid overtime.
“That’s what’s giving my people fits,” said Richmond lawyer Karen S. Elliot, whose clients include businesses grappling with the overtime rule change.
Wall said his law firm is in the process of reviewing its exempt employees to ensure the firm is complying with the new rules. For the most part, the firm does not expect to make any dramatic changes, he said. But the effort has given the firm an opportunity to make certain support staff employees are properly characterized according to what they do rather than what their title is.
Wall said the firm has also been strictly enforcing a 40-hour work week for non-exempt employees.
But even that approach is not without its challenges. Non-exempt employees who travel for work or who are used to checking their email at home can quickly find themselves working more than 40 hours per week.
That may not have been a big deal to a law firm prior to the new rules, when an employee’s salary made them exempt from overtime pay. But the new $47,476 salary threshold could push a lot more employees into non-exempt status.
Wall said his firm requires employees to log any hours spent working, regardless of where the work is done. Though he said it can be difficult to monitor out-of-office work.
“The firm’s expectation for staff members is that you work when you are here, and when you’re off you’re off,” Wall said. “Time-and-a-half adds up quick.”
To qualify for the white collar exemption, an employee must be paid on a salary, not hourly, basis. The pay must meet the new $47,476 minimum level. Thirdly, the employee’s work must involve duties associated with executive, administrative or professional employees.
Executive duties involve managing an enterprise or a customarily recognized department of the enterprise. Administrative duties include office work directly related to the management or general business operations of the employer or the employer’s customers.
Professional employees include “learned professionals” and “creative professionals.” Their work requires either an advanced degree or similar learning or skills that involve invention, imagination, originality or talent in a recognized artistic field.
Professional employees also include lawyers, doctors and teachers who fall into that special category unaffected by the new salary level.
What to do?
Employers have choices. The government is quick to say that businesses do not have to just raise all salaries of those affected to $47,500.
One option is “spreading employment,” by cutting the hours of staffers who now work more than 40 hours a week and adding additional employees to fill the gaps.
Another option is to leave an affected employee’s salary where it is and simply pay overtime. There is no requirement to turn affected salaried employees into hourly employees just because they now are entitled to overtime.
Of course, employers would have to make sure they accurately track that employee’s time for calculating overtime pay.
If the employee is not working more than 40 hours, no action is needed, the government says.
An officer manager performing the duties of a “bona fide administrator” might be paid a fixed salary of $42,000, according to a Labor Department example. The manager regularly works 9 a.m. to 5 p.m., Monday through Friday.
The new rule has no impact and the business can continue the $42,000 salary, according to the agency’s example.
Law firms watching
Will the changes rock the world of law firm management?
“Probably not a whole lot because law firms normally try to keep their overtime pretty strictly controlled,” said Elliot.
Law firms often use a 38-hour week for their staffs, leaving them unaffected by overtime rules, Elliot said.
DeCamps said law firm staffers such as paralegals and legal assistants normally would not qualify for exempt status anyway.
Nevertheless, DeCamps said he has been busy answering clients’ questions about the new rules. Non-profit organizations have been particularly hard it, he said.
Many of their employees work in white collar positions, but well below the new salary level, De Camps said.
The non-profits are facing a “real problem,” DeCamps said.