As New Overtime Rules Near, Businesses Need to Prepare

For months now, businesses of all sizes have been holding their collective breath waiting for the Department of Labor (DOL) to implement rule changes that could have a significant impact on labor costs.  The proposed changes to the Fair Labor Standards Act (FLSA) would increase the salary level for “white collar” exemption from the current minimum of $455 per week, or $23,660 a year, to $970 per week, or $50,440 annually.

After review by the White House’s Office of Management and Budget, it’s possible that the DOL may publish the rule as early as April 2016, although no effective date is known.  If the proposed regulations are finalized as currently written, it would mean that employees paid below the $50,440 threshold would be entitled to overtime on any work over 40 hours per week.

By Labor Department estimates, 5 million currently exempt workers would become eligible for overtime pay unless their salary is raised.

What may have felt like a distant business impact has now become a business imperative.  The good news is there’s still time to prepare by considering these five tips:

1. Check State versus Federal Regulations

Each state may enact regulations that differ from federal regulations. Businesses will be subject to whichever set of directives is more generous to employees.

2. Classify Employees by Salary

Employees making over the threshold amount may be exempt from overtime if their job duties primarily involve executive, administrative or professional duties, as defined under the regulations. Make a list of the employees whose salaries do not exceed the threshold because they may be entitled to receive overtime once the changes are enacted.

3. Calculate Employee Hours

Identify exactly how many hours per week each employee works.  If a previously exempt employee made $26,000 annually under the old rules, and actually worked 40 hours per week, then you can convert that salary into an hourly rate equal to their pay, or $12.50 per hour. Monitoring those employees’ work hours proactively with threshold reports and/or scheduling tools may help manage overtime costs or ensure that any work exceeding 40 hours per week is paid at the appropriate overtime rate.

4. Consider Changes to Salaries

Consider a different strategy for employees who make less than the proposed salary threshold, who were previously exempt from overtime and who typically work more than 40 hours per week.  You could raise these employees’ base salaries to at least the exemption threshold.  To determine if this is a more cost-effective approach, calculate the increased salary and compare it to the estimated overtime costs that would otherwise apply.

5. Monitor Overtime

Examine the ebbs and flows of your business and think about seasonal fluctuations.  You may find it’s more cost-effective to hire additional full-time, part-time or even temporary employees.  Or you may want to consider implementing an automated scheduling solution to help manage labor costs.  Global organizations that automate leave and absence management had 33 percent less unplanned overtime, according to a January 2015 report by the Aberdeen Group® titled “Productivity: Managing and Measuring a Workforce.”

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ADP, LLC is not a law firm, and the information contained in this article is not legal advice.  Any discussion of issues are factors you may or may not use in your decision-making process.  If legal advice is desired or required, the services of legal counsel are recommended.