On May 18, 2016, the Department of Labor announced the final rule on overtime regulations. And while it’s not as daunting as what was originally proposed, it is creating quite a stir.
The DOL estimates that employers will spend $592.7 million to comply with the new rule: $254.5 million for businesses to become familiar with the regulation, $160.1 million to make necessary adjustments, and $178.1 million in managerial costs.
The Final Rule On Overtime Laws
The new rule raises the salary threshold in which employees must receive additional pay for time worked over 40 hours to $47,476 a year from $23,660 a year—the cutoff established in 2004. There seems to be some disagreement over just how many workers will be affected.
The DOL puts the estimate at 4.2 million employees, while the Economic Policy Institute projects that more than 13 million workers will now be eligible for overtime.
Regardless of the number of employees affected, employers will be scrambling for cost-efficient ways to comply. With just six months to go until the rule takes effect (December 1, 2016), now is the time to act.
The DOL has published three options that employers should consider, and suggests that a combination of the three may be your best strategy.
- Raise workers’ salaries above the new threshold. If you have an employee whose salary is close to the new threshold level, you may consider giving them a pay increase in order to maintain their exempt status.
- Pay time-and-a-half for overtime work. For those newly overtime-eligible employees who typically work 40 hours or fewer a week, but have occasional overtime spikes, you may consider paying them time-and-a-half whenever they work more than a 40 hour week.
- Limit workers’ hours to 40 per week. Reevaluate hours and workload to ensure that no white-collar workers who earn below the salary threshold work more than 40 hours a week.
Situations To Consider
There are situations where the above suggestions may not be ideal. Keep the following in mind when determining what’s best for your company.
When it comes to a sales staff, employers face a challenge. If you choose to raise their salary base to the new threshold to avoid overtime, but then lower their commissions, you may be left with a less motivated sales team.
Newly overtime-eligible employees will become hourly workers who will soon need to begin punching a time clock every day. Be prepared that this change may be perceived by some as a demotion in status.
Timecard punching may lead to unintended consequences. This resentment may cause some to participate in time sheet fraud or “wage theft.” There may also be an increase in wage-and-hour lawsuits as employers will have to start tracking hours for a lot more employees, creating more room for mistakes and misunderstandings.
Limiting workers’ hours to 40 a week may mean having to hire additional staff to get the same work done, another cost to employers.
What’s Your Overtime Compliance Strategy?
There’s a lot to consider when creating a strategy to comply with the DOL’s final rule on overtime laws and now is the time to act. Your strategy should account for the fact that the minimum salary threshold will automatically update every three years beginning January 1, 2020, another stipulation set forth by the rule.