Overtime rule changes will affect shops

June 16, 2016
Body and repair shop owners should be prepared to re-evaluate how they pay some employees so that they can stay in compliance with new overtime rules.

Body shop owners should be prepared to re-evaluate how they pay some employees so that they can stay in compliance with new overtime rules.

In May, the Department of Labor announced changes to overtime pay regulations that may lead to autobody shops and mechanical repair shops re-classifying previously exempt employees.

The new rules, which take effect on Dec. 1, raise the minimum salary threshold from $23,660 ($455 per week) to $47, 476 ($913 per week) to qualify as exempt from overtime requirements. The highly compensated employee threshold is also being raised from $100,000 to $134,004.

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In addition, the salary threshold will be updated (and likely raised) every three years.

The duties test (which is uses the type of work the employee does to determine exemption) has also been tweaked so that bonuses and incentive payments can count toward as much as 10 percent of the new salary level.

“It works out so that you could pay them as low as $821.70 a week, and then over some longer period in the quarter you could have the person be given bonuses or commissions to make up the rest,” says Brian Farrington, an employment law attorney at Dallas-based Cowles & Thompson.

Farrington participated in a panel discussion on the new rules presented by the Automotive Service Association (ASA) on June 15. Darrell Amberson, president of operations at LaMettry’s Collision, and Ed Cushman, owner of C&H Foreign Auto Repair in Spokane, Wash., also participated.

The DOL expects the change will raise wages by an estimated $12 billion over ten years, and extend overtime protections to 4.2 million additional workers.

Shop owners will need to re-evaluate their exempt employees and either raise their pay to meet the new levels; pay them overtime; transition them to hourly pay; or realign work hours and staff workload.

After the new rules were announced, the Auto Care Association released a statement expressing disappointment in the decision to increase the salary threshold.

“Members fortunate enough to be aware of the coming changes are already beginning the reclassification of many employees as well as revisiting overall wages and benefits,” said Bill Hanvey, president and CEO, Auto Care Association. “One association member has already advised us that he ‘has to inform 10 percent of his employees that they are now hourly, not salaried’ and he doesn’t know how to deliver that message. Even more troubling is the large number of companies in the auto care industry who remain unaware of the change in regulation and its consequences.” 

What it Means for Shops

How much this affects shops will depend on how many currently exempt employees they have. If you do have any salaried, exempt employees you’ll need to run the numbers and see what makes the most financial sense – giving them a raise or converting them to non-exempt.

Even in California, where the state threshold had been twice the state’s minimum wage, the new rules will increase the salary level by nearly $6,000.

According to the panel members participating in the ASA webinar, there are a number of things shops should keep in mind when they look at their employee classifications.

* For employees already making in excess of the new salary threshold who remain exempt, you don’t have to do anything.

* Simply making more than $47,476 doesn’t automatically exempt the employee from overtime. This is where the duties test comes in. Employees that are exempt under the duties test need to have management responsibilities, including the right to hire and fire. Administrative positions that are exempt must be “a high level staff person, like an HR director or a purchasing agent,” who is making important decisions about the business with some degree of autonomy, Farrington says. “Your office staff is largely not going to qualify.”

Likewise, a supervisor isn’t exempt just because they have that title. “If the shop foreman spends most of his time with a wrench in his hand, he’s not going to qualify,” Farrington says.

* Your service advisors are probably not exempt. Even though your service advisors may be paid on commission, they likely fail the duties test when it comes to exemption.

“They aren’t supervising, and they aren’t doing high-level administrative work,” Farrington says. “I would say right now that anyone paying a service advisor a salary [to make them exempt] is probably making a mistake.”

* Most of your office staff is also not exempt. Even if they are salaried, most of the office staff in a typical shop is not going to qualify as exempt under the duties test. “It’s not enough to do bookkeeping,” Farrington says. “They have to be making decisions in matters of significance, and have to exercise discretion and independent judgement. Your HR director or a purchasing will qualify.”

But an office manager or clerical staff won’t.

* That said, there is a separate exemption (under the Fair Labor Standards Act, FLSA 7I) that allows shops to pay flat rate hours to technicians and other employees and still make them exempt from overtime. If the employees are averaging 1.5 times the state minimum wage for every hour worked, and more than 50 percent of their compensation comes via commission, they are exempt. (Those employees still need to punch the time clock, so you can track their hours.) The new rules haven’t changed that exemption.

“You can either set commissions high enough so that it is 50 percent, or pay the employee 100 percent commission and give him a draw against the commission,” Farrington says.

* Make sure everyone is clocks in in and out. Amberson, who has gone through a labor audit, says that accurate records are a must. “If you don’t have a time clock, the auditor is going to go the individual employees and they will tell them how many hours they think they’ve worked,” Amberson says.

“If you don’t have time records, you are the mercy of your least honest employee,” Farrington adds.

* Evaluate your scheduling. “Time tracking systems give you a wonderful opportunity to look at employees that are spending more than 40 hours a week at work and not being compensated, and then re-arrange those schedule,” says Cushman.

Depending on how the math works out, shops could shift non-exempt salaried employees to an hourly rate that roughly matches their present salary. That rate does not have to be figured based on a 40-hour workweek, but if the employee clocks fewer hours they will make less money (conversely, if the work excess hours the shop will owe them time-and-a-half).

Shops are encouraged to consult an employment law attorney to help make sure they are in compliance. Also, keep in mind that each state has slightly different laws that may be more or less stringent than the federal requirements.

“It’s important to understand the regulations and err on the side of caution,” Amberson says.

The upside is that if you currently have any mis-classified employees, you can take this opportunity to adjust your classifications to make sure you are completely in compliance. “Suppose you have some employees you have been paying salary to, thinking they were exempt,” Farrington says. “What if you are wrong? What if you made mistakes and misclassified them? This is a terrific time to fix that.”

You can read more about the rule changes here: https://www.dol.gov/whd/overtime/final2016/

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