United States: How Proxy Data And Pilot Studies Can Help Employers Prepare For The DOL's New Proposed Overtime Rules

Last Updated: September 25 2015
Article by Brett C. Bartlett and Katherine Smallwood

Co-authored by Brett C. Bartlett, Katherine M. Smallwood, and Michael DuMond & Bo Shippen of Economists Incorporated

The U.S. Department of Labor's Wage & Hour Division recently announced its proposal to amend 29 C.F.R. Part 541, containing the "white collar" exemption for executive, administrative, and professional employees. The Division's proposal would dramatically increase the salary levels required for the exemption and the highly-compensated exemption. The standard salary is projected to be $970 per week or $50,440 per year, and the highly-compensated employee standard salary would be set at $122,148 starting in 2016. If the proposals become law, the requisite salary levels for these exemptions are scheduled to increase automatically each year.

Given the size of the increase to the minimum required salary level, many employers may be forced to reclassify portions of their workforces to nonexempt status. It is crucial that employers take steps to plan for the impact that reclassification could have on their budgets. As a threshold matter, employers must determine who in their businesses will be impacted by the proposed salary increase. In other words, employers must know who among their employees are currently classified as exempt but earn less than the proposed salary amount of $50,440.

Once an employer identifies the employees for whom this change will impact, it will need to consider how reclassifying some or all of them would impact the company's bottom line. Not surprisingly, most businesses do not track the hours worked by their exempt employees. As a result, it can be difficult to determine how many "overtime" hours these impacted employees will be likely to work if they are reclassified to nonexempt status. This is where proxy data and pilot studies can help employers plan for changes in wage-related expenditures.

Proxy data are preserved characteristics of an environment that can stand in for direct measurements. For example, insurance companies have realized that students with good grades are often better drivers, and therefore use G.P.A. as a "proxy" to measure safe driving behavior. Businesses often create and preserve proxy data that can help establish the approximate number of hours worked by exempt employees who do not currently track their time using traditional methods (e.g., time clocks or time entry). These types of proxy data include:

  • Key or badge swipe records;
  • Alarm login and logout records;
  • Records reflecting times when employees logged in or out of a computer network;
  • Cash register login and logout records;
  • Video surveillance footage;
  • Email records; and
  • GPS data (especially for driving-related occupations).

Employers can use these types of data to estimate the number of hours an exempt employee works in a given week.

In addition to extrapolating the number of hours worked from proxy data, businesses can use pilot studies to estimate how many hours exempt employees work per week. Employers using pilot studies must consider how to select a representative sample of employees and how to accurately track the employees' time. Although pilot studies may offer a more accurate portrayal of an employee's work hours, companies using these studies will also need to train participating employees on proper timekeeping methods.

Proxy data and pilot studies can help employers plan for budgeting by allowing them to more accurately anticipate the expenditures associated with paying overtime payments to employees who become non-exempt. Employers could also use the data to set reclassified employees' wage rates (including the anticipated overtime pay) at a level where the expected weekly pay does not change following the reclassification.

For example, imagine that John Smith works for Company A as an exempt employee and his weekly salary is $660. Company A has determined that it will need to reclassify John as a nonexempt employee due to the DOL's new proposed overtime rules. After examining the times that John logged into and out of the company's computer network, Company A estimates that John works 50 hours per week on average. If Company A simply converts John's salary to an hourly rate without consideration of his typical overtime hours, his wages would be set at $16.50 per hour ($660/40 hours per week). Armed with the knowledge of John's typical working hours, Company A could instead set John's hourly rate at $12.00 per hour and his weekly pay would still amount to $660, assuming he continues to work 50 hours per week ($600 regular pay + $60 for the overtime premium). In contrast, if his hourly wage was set to $16.50, then John Smith's typical weekly earnings would increase to $907.50

While proxy data and pilot studies can help employers plan for the impact of the DOL's proposed overtime rules, there are some potential obstacles to consider when using these tools. First, employers cannot expect total accuracy in estimations of hours worked because most forms of proxy data are not intended to track actual hours worked. The available data may be incomplete or misleading. For example, proxy data drawn from key, badge swipe, or alarm records may demonstrate the duration that an employee was physically present at the worksite, but may lead to an overestimation the number of hours the employee spent performing compensable work. Similarly, pilot studies performed on less than the total impacted population cannot calculate employees' work hours with complete accuracy. Moreover, depending on the employer's technological capabilities and the type of proxy data available, it could be expensive or time consuming to collect, process, and analyze the data needed for the study. Finally, employers using proxy data or pilot studies must gather detailed, weekly data to generate a useful assessment of hours worked. Relying on an average number of hours worked per week can distort the true cost of an employee's overtime work by masking the fact that a particular employee works a higher number of overtime hours in a small number of weeks. This is particularly true where most of the overtime hours occur seasonally, such as with retail employees during the holidays.

Despite these challenges, many employers will find that using proxy data or pilot studies will be well worth the effort. With thoughtful and creative use of proxy data or pilot studies, employers can more accurately predict, and even minimize, the financial impact of reclassification.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Brett C. Bartlett
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.