New rules on overtime pay kick in this year, and human resources experts say now is an ideal time for businesses to take a comprehensive look at their salary policies.
The Colorado Department of Labor and Employment’s Division of Labor Standards and Statistics announced the final order on overtime and minimum pay standards Jan. 22, which includes significant changes to the rules under which businesses have been operating and expands the field of businesses that are covered.
Several provisions have changed since the draft order was issued in December. The new rules go into effect March 16.
Employers also will need to consider the effects of Colorado’s new Equal Pay for Equal Work Act, which takes effect in 2021, on their compensation policies.
“In conjunction with the Equal Pay for Equal Work Act, 2020 would be a very good year for employers to understand how they’re compensating employees and make sure employees are properly classified as exempt, and that they are not unintentionally discriminating against employees,” said George Russo, staff attorney at the Employers Council, an organization that assists employers with HR and employment law.
NEW OVERTIME RULES
The Colorado Overtime and Minimum Pay Standards Order No. 36 makes three significant changes to the previous wage order:
• It applies to all industries;
• it raises the minimum salary required to exempt an employee from overtime pay; and
• it expands upon and clarifies ambiguous wage rules that had generated lawsuits and confusion for both employers and employees.
The previous order covered only four industries: retail and service; health and medical; food and beverage; and commercial support.
“Now it’s going to apply to most private employers,” Russo said. “There are some exceptions to certain rules, but all private employers need to know what the order is saying.”
The order specifies that employers must pay employees at least $12 per hour, must pay overtime to eligible employees who work past 40 hours per week and 12 hours per day, and must provide meal and rest breaks.
Starting July 1, the minimum salary required for an exempt employee is $35,568. That amount will rise annually until it reaches $55,000 in 2024. After that, the salary amount will change in accordance with the Consumer Price Index.
Salary is not the only factor involved in exempting an employee.
Rule 2 of the order sets out the kinds of employees that may be exempt from overtime pay. Those employees include management personnel, such as executives or supervisors and the administrative employees who directly serve them, professional employees, outside salespersons, and owners or proprietors.
The order spells out the duties that qualify these employees for exempt status and also lists a number of other types of employees who may qualify. These workers include interstate transportation workers, taxi drivers, certain in-home workers such as property managers who live on the premises where they work, and agricultural and technical workers under certain conditions.
For example, computer systems analysts, programmers and software engineers may be exempt if they spend a minimum of half the work week performing highly technical duties that are specified in the order.
The order contains provisions including handling of employee tips and charges such as the cost of required uniforms; requirements for employers’ recordkeeping and posting of information about the regulations; and the entitlement of employees to file wage claims or complaints if they believe their rights have been violated.
CHANGES TO THE ORDER
Scott Moss, director of the Division of Labor Standards and Statistics, said the final order was revised after the division heard from more than 1,300 people during a comment period.
The final order reduced the minimum exempt salary from the originally proposed $42,500 to $35,568 — the same as the federal level.
“We slowed the initial phase-in after feedback from the business community, the Colorado Chamber of Commerce and others that it would help businesses to have more time to phase in a salary above the federal level,” said Moss.
“We also changed the later years in the salary schedule, because the biggest critique from labor was that they wished it could take fewer … years to phase in the full level of exempt salary,” he said.
So the salary level will reach $55,000 by 2024, when indexing kicks in, instead of 2026.
The new order, which is 15 pages long, goes into great detail to simplify and clarify the wage and overtime rules, Moss said.
“Business attorneys reported that clients want clarity above all else, because when rules are unclear, that’s when lawsuits happen, and they’re harder to resolve,” he said. “We … provided as much as possible in plain English, and we also added rules that simply clarified more detail on, for example, what computer sector employees are exempt and what pre- and post-work time counts as time worked.”
Moss said the division will be releasing a series of fact sheets that flesh out the rules for particular industries beginning within about a month. The division also will schedule training events and webinars for employers who want to learn more. Information will be available at coloradolaborlaw.gov.
WHAT EMPLOYERS NEED TO DO
The revised exempt salary threshold is “a big win for employers,” Russo said. “That mid-year change was going to be difficult for some Colorado employers.”
But he noted that by 2021, the Colorado level will likely top the federal level.
“That will be a perspective that employers need to really be thinking about over the next few years,” said Marnel Mola, director of the Colorado Springs office of the Employers Council. “If they can’t afford to keep up with that number, they’re going to have to consider moving employees to hourly and eligible for overtime. This year … is a prime opportunity to look into the future from a budgetary standpoint and preparing for 2021.”
Employers would be wise also to take a comprehensive look at their pay policies, since the Equal Pay for Equal Work Act will impose another set of regulations in 2021.
Passed and signed into law in 2019, the act aims to promote pay equity among men and women, and imposes heavy penalties for pay discrimination.
“One way to avoid that is to do a pay equity analysis — a statistical look at your pay ranges to make sure they’re not discriminating,” Russo said.
Mola recommends doing “a holistic review of what your pay practices are and what you can afford, and what you potentially need to be re-evaluating, and make sure you have someone with [wage and hour] expertise to help guide you.”