From Now to December: Transitioning to the New Overtime Rules

On Tuesday, the White House announced the Department of Labor’s new rule updating the overtime regulations to cover an estimated 4.2 million newly eligible workers. As an employer, these changes affect your business — will you rethink your business model and hiring strategy to minimize your payroll costs?

The Rule

• The update is the first in four decades, dating back to 1975; the salary threshold until 2016 was $23,660
• Starting Dec.1, salaried workers who make up to $47,476 will be eligible for overtime pay after working 40 hours in a week
• Employers will be allowed to use nondiscretionary bonuses, incentive payments, and commissions to make up as much as 10% of the minimum salary level, so long as the payments are made at least quarterly, with a “catch-up” payment allowed in the pay period after the end of the quarter if the salary level has not been met
• Additional provisions of the rule can be found within the Department of Labor’s Overtime Fact Sheet.

How Will You Comply?

While the updated rule was designed and implemented to raise low and middle-income wages by extending overtime pay to approximately 4.2 million salaried workers, employers have legal ways of adjusting their business operations in order to keep wages roughly the same.

In an article by USA Today, economist Paul Davidson points out that employers have multiple, legal methods of complying with the law, without actually paying employees more. To cut corners, an employer can simply instruct newly eligible employees not to work over 40 hours a week (and potentially hire part-timers to pick up the slack), or raise an employee’s salary to the new threshold to avoid them qualifying for overtime.

On a more ominous note, an employer can make more consequential actions, like cutting the base pay of newly eligible salaried workers to offset the overtime payments, or, switching employees from being salaried to hourly and adjusting their rates so that they earn the same wages. They can even strategize hiring, and opt to hire two part-time employees, instead of one full-time employee, to achieve the same results for less.

These methods are likely to lower employee morale. A change in employee status (i.e. exempt to non-exempt), strips salaried workers of prestige, and the motivation for such decisions are paper-thin – employees will recognize this as a workaround solely designed to avoid putting more money in workers’ pockets.

However, in all likelihood, few employers will have the time to develop strategies for each employee in order to keep employee pay levels the same.

Timekeeping

Universally, what will be required moving forward, is a timekeeping system that can accurately count work hours, as 4.2 million salaried employers who were previously excluded from earning overtime pay are now eligible for overtime.

This presents challenges for employers without reliable time tracking, as it will be more important than ever to ensure worked time is accounted for. FingerCheck offers multiple clock-in methods that employees can use to punch in for work and log their hours, whether they’re in one office, working from home, or traveling.

Rollout period

The rule comes with an implementation period of eight months – employers have until December 1, 2016, to implement the new rule, leaving them with plenty of time to strategize and possibly re-organize in order to comply with the new law. Also, the duties workers have to perform in order to be considered salaried have not changed – workers exempt from overtime are still evaluated based on their job duties and how much money they make.

Assessing salary

According to the Department of Labor, “For the first time, employers will be able to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the standard salary level, provided these payments are made on a quarterly or more frequent basis.” As published in the rule, the salary threshold will routinely be evaluated and updated every three years.

While the new overtime rules will impact most businesses, according to the Obama Administration, the new regulations will help restore middle-class jobs and boost the paychecks of low and middle-income earning professionals. As an employer, you can begin preparing your business for the implementation of the new rules today, so that come December your business will be in full transition and compliance with the law.