Big change in overtime pay coming soon — Are you prepared?
Monday, May 02, 2016
It has been decades in the making and may affect up to 5 million workers across the U.S. "It" is the proposed rule change on who is eligible for overtime pay, due to be issued in June by the Department of Labor (DOL). If you haven't figured out how your business will be affected, time is running out.
The new rule is expected to raise the salary exemption from $23,660 per year to $50,440 per year. Any employee making less than that will be eligible for overtime pay, and employers will be required to pay overtime for any work above 40 hours in a week.
According to DOL, the increase in the salary threshold is aimed at reducing overtime work and its detrimental effect on the health and well-being of workers The change is further meant to give employers a reason to hire more employees rather than have existing employees work longer hours. DOL also contends that raising pay for affected workers will reduce employee turnover and increase employee productivity.
In a study conducted on behalf of the National Retail Federation, Oxford Economics concluded the proposed overtime regulation would cost the restaurant and retail industries alone $8.4 billion per year if fully implemented. Reaction from business groups has been vociferous:
- The U.S. Chamber of Commerce: "Making more employees eligible for overtime by severely restricting the exemptions will not guarantee more income, but instead will negatively impact small businesses and drastically limit employment opportunities.This change is another example of government adding more burdens to employers and expecting them to just absorb the impact."
- The National Restaurant Association: "These proposed rules have the potential to radically change industry standards and negatively impact our workforce."
- The American Hotel and Lodging Association: "The proposed changes to overtime rules will hurt our employees and severely impact small-business owners, who will be unable to continue the pace of job growth that has been so vital to boosting the economy."
As an employer, you can start planning now for the new overtime rules. The National Federation of Independent Businesses (NFIB) advises doing the following:
- Identify currently exempt jobs with salaries that fall below the proposed new salary threshold for exempt employees, using $970 per week, or $50,440 per year.
- For employees who may be reclassified as hourly employees, understand now how many hours they are working per week and determine whether you can cap overtime.
- Think about what operational changes need to happen as a result of the reclassification of employees from exempt to nonexempt like changes to job duties, changes to schedules, or changes to staffing levels.
- For positions that often result in overtime pay, consider hiring more full-time, part-time and/or seasonal employees, or job restructuring to offset expansion of overtime pay.
Putting personal opinion aside, employers need to be prepared to restructure their workforces to help deal with any increased labor costs caused by the new overtime rules. Court challenges are also likely. Now is the time to consult with legal counsel to ensure you are prepared to comply.
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