New Overtime Rules Are Here: Their Impact And What Employers Need To Consider

DOLFor over a year, employers have been told “a change was coming,” and now it is here with the Department of Labor’s new rule for overtime for white-collar workers (the administrative, executive, and professional exemptions). The rule becomes effective on December 1, 2016.

Here’s the deal:

If, on December 1, you have an exempt employee who meets the duties requirement (which the new rules did not change) and who makes less than $47,476 ($913 per week), you will now need to pay overtime rates to that employee for overtime hours worked. Overtime rates are “time and a half” for every hour worked over 40 during a “workweek.”

An employee’s workweek is a fixed and regularly recurring period of 168 hours – seven consecutive 24-hour periods, according to the DOL. “It need not coincide with the calendar week, but may begin on any day and at any hour of the day. Different workweeks may be established for different employees or groups of employees. Averaging of hours over two or more weeks is not permitted. Normally, overtime pay earned in a particular workweek must be paid on the regular pay day for the pay period in which the wages were earned.”

Here’s how the new rules work, for example:

If Joe makes $45,000 a year and usually works eight hours of overtime per week, you will end up paying Joe more during the year. Joe’s yearly amount earned will go up from $45,000 to $58,453.44 (to reflect overtime hours) which is nearly a 30% increase per year.

If you have 20 Joes in your workplace, then that is $269,060 hit to the bottom line.

Here’s another impact of the DOL announcement:

To avoid potential wage and hour liability and be fiscally responsible, employers should track the time of anyone who makes less than $47,476 per year and who meets the duties test. So, some employees who did not have to “punch the clock” before December 1, 2016, should punch the clock after December 1.

So, when Joe was an exempt employee making $45,000 a year, he often worked more than 40 hours in a workweek, but he also enjoyed being able to take off early on Tuesdays and Thursdays to coach his son’s Little League baseball team. As an exempt employee, Joe and his manager agreed that Joe could use work time for volunteer work. Under the new rules, Joe’s employer can either give Joe a raise so his salary is at least $47,476 a year; pay Joe for the time he coaches; or make Joe clock out when he volunteers his time.

The DOL asserts that Joe will either get paid more or will work less, providing more balance to Joe’s life.

The Department of Labor promotes the rule changes as a long overdue raise for 4.2 million employees. The estimated economic impact is $12 billion. In addition to employees receiving a raise, the government will also get a raise…more overtime means more income and employment taxes going into government coffers.

Other changes:

  • The threshold will “update” every three years. In other words, will go up every three years based on the lowest-wage census area.
  • Highly compensated employees who receive overtime also have their threshold raised from $100,000 to $134,004 before they become ineligible for overtime.
  • Up to 10 percent of the standard salary level can come from non-discretionary bonuses, incentive payments, and commissions, paid at least quarterly.

The DOL gives employers the following options:

  • Pay more overtime;
  • Raise worker salaries above the threshold;
  • Require workers to work less; or
  • Some combination of the above.

There are other alternatives employers will consider:

  • Cut pay to compensate for the overtime
  • Roll up bonuses and raises into salary to get above the threshold
  • Hire more part-time employees to perform overtime work
  • Layoff or terminate employees to make up the difference
  • Transfer the overtime workload on those above the threshold and/or
  • Eliminate or cut back on bonuses, raises and benefits including paid time off.

If the outcome of the Affordable Care Act is a guide, then expect employers to make up the difference in ways to preserve the bottom line.

Employers have six months to get ready for the change. Here are some things to consider:

  • How many employees are affected;
  • The financial impact of not requiring overtime, paying overtime or raising employees above the threshold;
  • How will you discuss changes with affected employees and how they will track their time on December 1; and
  • How employees will need to get approval for overtime before they are allowed to work overtime.

Employers have a lot to consider before December 1. We will continue to provide information and analysis on the changes…so stay tuned.

Source:  By Jack McCalmon, The McCalmon Group, Inc. – May 23, 2016


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