New Overtime Regs: How To Avoid Increased Labor Costs
In a stunning development sure to frighten employers, federal overtime regulations were overhauled this week. The result: starting December 1, 2016, to be exempt from overtime, employees must earn at least $47,476 per year.
That’s right. All employees currently classified as “exempt” (i.e., not entitled to overtime), and paid a salary between $23,660 and $47,475, are now entitled to overtime.
Let that sink in a bit.
Those analysts who pound out 60 hours a week at $45,000 a year? Under the new rules they are entitled to overtime. So, 20 of those 60 hours would be paid at time and a half, making their annual compensation $77,451.92.
Takes your breath away, right?
And rest-assured that employees will be well-versed in their right to be paid more thanks to the media flogging of this story. The bury-your-head-like-a-flamingo act won’t work this time. Avoiding this new requirement will be an invitation for the U.S. Department of Labor to pay you a visit – not for a cup of tea, but for an audit and investigation.
Worse still — you could be inviting a costly lawsuit.
Here is an overview of the new regulations:
- Sets the minimum salary level for FLSA White Collar Exemptions (Executive, Administrative, and Professional) at $913 per week ($47,476 annualized) – up from the current $455 per week ($23,660 annualized)
- Raises Highly Compensated Exemption to $134,004. This was raised from $100,000.
- Creates a mechanism for updating salary and compensation levels every three years to ensure that the regulations are staying up with economic realities.
- Updates the salary basis test, so that nondiscretionary bonuses and incentive payments (including commissions) can satisfy up to 10% of the new salary level.
- Applies specific new rules apply to Non-Profits and Higher Education.
What do I do now?
Between now and December 1, 2016, employers should be planning for this change. Right now you should:
- Review all of your employees who are classified as exempt, and determine the basis of the exemption.
- For all employees who are currently classified as exempt and earn a salary between $23,660 and $47,476, flag them. You will need to make changes with respect to how you pay these employees.
- Establish a time-keeping system so that by December 1, 2016, you are tracking the hours all of your employees, who are earning less than $48,000. Okay, the real threshold is $47,476, but let’s be safe.
- Don’t panic.
Here are some options to help contain labor costs:
- Convert salaried exempt employees currently earning $23,660-$47,476 to hourly employees. Create a policy that does not permit overtime unless pre-approved by management.
- If limiting work to hours to 40 a week is impossible, instead of creating an hourly wage that corresponds to their current salary, you can trim the hourly rate, and plan for an allotted amount of overtime.
- Convert salaried employees to hourly, and hire more of them, and enforce a strict no overtime policy.
- Raise salaries, so that they are above the threshold to receive overtime. This may make sense for employees currently earning a salary of $40,000 – $47,476.
Takeaway: These are big changes, but with proper planning and some guidance, you can manage them. Get on top of the situation now, and create a plan that works for your business.