Working overtime: Lawyers confront changes, plan for compliance

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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 said. 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 said. 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 partner with Ogletree Deakins in Greenville.

Law offices could be forced to make some changes, most likely with office managers and similar staffers. But lawyers in the field said 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 67,000 in South Carolina.

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.

McDonald said Ogletree Deakins is in the process of reviewing its exempt employees to determine how best to comply with the new rules.

“We’re up to about 800 lawyers firmwide. With staff, we probably have close to 2,000 employees,” McDonald said. “A number of our employees are going to be affected by the new overtime regulations, and our HR department is going to have to make changes to meet the new standards.”

He said that may include giving some employees raises or looking at their duties to see whether they fall under any exempt categories.

To qualify for the white-collar exemption, for example, 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 has been 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?

“Law firms are probably not going to be affected as much as other businesses because they don’t have as many employees in roles that would qualify for non-exempt status,” said McDonald said.

Law firms often use a 38-hour week for their staffs, leaving them unaffected by overtime rules.

However, McDonald said law firm staffers such as paralegals and legal assistants typically do not qualify for exempt status, meaning they’re eligible for overtime pay if they work more than 40 hours per week.

“The U.S. Labor Department has maintained that paralegals are not exempt because their work has to be overseen by a lawyer and they are not seen as having discretion to make independent judgments, so the exemptions don’t apply,” he said. “That’s not to downplay their role. It’s just how the rule is currently applied.”

Nevertheless, attorneys have been busy answering clients’ questions about the new rules. Non-profit organizations have been particularly hard it because many of their employees work in white collar positions, but well below the new salary level.

McDonald said the new rules may provide businesses of all types to reassess all of their employees who are classified as exempt to ensure “they have their house in order.”

But he said it is important for businesses to be consistent when making any changes to employee salaries, lest they open themselves up for a discrimination claim. He said a business could expose itself to a lawsuit if, for example, a male employee’s salary is increased to meet the $47,500 salary exemption, while a female employee with the same job does not receive a raise.

“Any changes you do end up making need to recognize potential issues that could be grounds for an equal pay or a discrimination claim,” McDonald said. “Those problems can be avoided if you take a step back and make sure all of the changes are being made consistently.”