In 2014, President Obama signed a Presidential Memorandum directing the U.S. Department of Labor to update its regulations applying to overtime standards. Following that directive, the department in July 2015 presented a “Notice of Proposed Rulemaking,” which outlined a comprehensive update to the current overtime rules.
Under federal rulemaking procedures, there was a 60-day comment period for interested parties to submit feedback on the proposal. That period elapsed this fall, and the Department of Labor is finalizing its recommendations for the amended overtime rules. Those new rules have yet to be issued, and a clear timetable hasn’t been determined. The last time there were changes to federal overtime rules, it took almost a year for them to be finalized.
Under the current rules for overtime, last updated in 2004, non-exempt employees working more than 40 hours in a single work week are entitled to overtime, or time and a half, for each additional hour. A minimum condition to reach exempt status (removing the employee from the right to overtime pay) is whether the employee is making a minimum salary of $23,660 a year or $455 per week. The proposed changes to reach exempt status would double the current minimum salary standard to $50,440 a year or $970 per week.
It’s estimated this change would impact more than 5 million workers who are currently exempt under the lower guidelines, entitling them to earn overtime. It’s also estimated by the National Retail Foundation that this change could cost employers more than $800 million in converting salaried employees to hourly, and more than $9.5 billion in overtime costs.
The Affect on Self-Storage
Will this change affect the self-storage industry? Absolutely. Under most self-storage operations, managers are already considered non-exempt employees. There are, however, many managers who may be considered exempt under current Department of Labor guidelines but are making less than $50,440 per year.
Now, based on this proposed minimum-salary test, more managers will fall into that non-exempt category, requiring facility owners and management companies to pay these employees overtime when they work more than 40 hours per week. This test will undoubtedly clarify the question of whether most self-storage managers are entitled to overtime since most will likely receive pay under the $50,440 minimum.
But the minimum salary isn’t the only test to verify exempt vs. non-exempt status. To be exempt, an employee must also meet other criteria regarding his job duties. Depending on the work he performs, regardless of whether he meets the minimum-salary standard, an employee may still be considered non-exempt and entitled to overtime wages.
If this new rule comes to pass, it’s very likely employers will seek to offset the increased cost of their storage managers by reducing wages and hours of work. Facility owners are also likely to reduce bonus opportunities and other methods based on revenue or other objective sales standards.
How the 40 work hours and overtime is calculated continues to be a difficult issue for all employers. For example, “bona fide” meal periods—time over 30 minutes a day for employee meals—are not regarded as work time and not included in the 40-hour calculation. However, an employer can’t automatically subtract the 30 minutes from an employee’s day unless the employee actually takes this time off. Otherwise, the employee is entitled to be paid for the time worked. Since the overtime rate is triggered by employees working more than 40 hours per week, it’s likely that employers will need to become more stringent on how meal periods or any non-worked periods are enforced.
Similarly, there will likely be more restrictions in place to limit the opportunity for overtime work. Otherwise, there will be more potential for non-exempt employees to earn overtime, which will be more costly for employers.
Similarly, all non-discretionary bonuses (those promised or expected to be paid based on the quality, quantity or efficiency of hours worked) must be included within the straight time-wage calculation before any overtime wages (time and a half of the standard wage) can be calculated. Only discretionary bonuses—those employees have no reason to expect and are made at the sole discretion of the employer—can be excluded from the calculation of overtime.
At the end of the day, whether a bonus is discretionary or non-discretionary depends on a number of factors. Since the decision of what to include in the straight time wage may dramatically affect the overtime calculation, employers will likely move to more discretionary bonuses, which may further reduce employees’ income potential.
Give Some, Take Some
It appears the goal of these rule changes is to enhance the entitlements of workers who may otherwise be subject to exempt status but are losing the opportunity to be paid the fair value of their hours worked. On the other side of the coin, the increased cost of wages will force employers to limit the hours their employees can work, possibly reducing the standard wage and detrimentally impacting employees’ income.
Self-storage operations aren’t immune to these financial impacts. Neither are their employees immune to the possibility that owners may no longer be able to afford the management staff they currently have in place after these laws change.
Scott Zucker is a partner in the law firm Weissmann Zucker Euster Morochnik P.C. in Atlanta, where he specializes in business litigation with an emphasis on real estate, landlord-tenant and construction law. He’s a speaker at industry events, author of “Legal Topics in Self Storage: A Sourcebook for Owners and Managers,” and a partner in the Self Storage Legal Network, a subscription-based legal service for storage owners and managers. To reach him, call 404.364.4626; e-mail email@example.com; visit www.wzlegal.com.