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Overtime Law Changes: What It Will Cost Your Company

The bottom line? You are about to be impacted by upcoming labor law changes.

If you have heard about the proposed Department Of Labor (DOL) rules change to the mandatory overtime regulations, you may be wondering whether your business will be affected or not. The answer to that question is probably Yes – in varying degrees, depending on how you plan to satisfy the rules.

As employers we will have to face complicated operational issues as a result of the proposed overtime rule. It’s important that company leaders and HR teams consider this well in advance of the final rule.

The sooner you prepare the easier it will be for you, your employees and your company.

The Proposed Regulations address the following exemption test:

  1. Executive
  2. Administrative
  3. Outside Sales
  4. Professional
  5. Computer / IT professionals

Increased Salary Requirements

The proposed changes will increase the salary threshold employees must meet to qualify for overtime exemption from $455/week to $970/week. Or to put this in terms of annual salary…

From $23,660 to $50,440

Even if the position meets the other exemption test criteria,
the position MUST be reclassified
as an hourly position (nonexempt)
when the pay for that position is less than $50,440!

And, to guard against future erosion of overtime pay, the proposed regulation also contains updates of the salary threshold to keep pace with inflation!

Employers facing rising labor costs will need to consider:

  • Do we pay our employees more to keep them exempt?
  • Do we pay them less and/or reduce their hours to minimize overtime costs?
  • Do we eliminate or reduce benefits provided to these previously exempt
  • Do we hire more workers to account for any hours shortfalls?

To enroll in our DOL Rules Change Alert list for updates on the status of this proposed change, click here.

What about benefit packages?

If you provide different benefits to salaried employees vs. hourly employees, benefits will also be affected.

If a position will no longer qualify as a salaried position (exempt from overtime), any employees you have in that position will no longer qualify for the benefits you offer your salaried employees.

Converting a position to hourly (nonexempt) means that the employee gets the nonexempt benefits, unless the employer chooses to change the benefit plan‘s terms. And, since benefit plans are legal documents, there are only certain times of the year that a company is allowed to make any changes to those plans.

Steps Employer’s Should Take Now

“Since many of these considerations and changes are time sensitive, employers don’t want to wait until the final rule to realize that you need to increase a certain number of employees by thousands of dollars each to ensure that they are still exempt.” advises Michael Arnold, an attorney with Mintz Levin in NYC.

The proposed rule affects different employers in different ways. Its effect will depend on factors such as:

  • Your strategic goals
  • Your business model
  • Your industry
  • The region in which you operate your business
  • The overall competitive landscape
  • Your organization’s culture

Of course, policies can be set to discourage overtime so that an employer could get to a neutral cost structure without cutting benefits. However, if an employee works overtime – with or without the employer’s knowledge or consent – the employer is obligated to pay the overtime worked.

“After running their own analysis, each employer will decide how, if at all, they will change their pay practices to satisfy the dictates of the new rule,” stated Allen Smith manager of workplace law content for the Society for Human Resource Management (SHRM).

The bottom line is that, as a company leader or HR professional, it is imperative that you begin looking at how this will affect your 2017 budget and the impact that it will have on your team.

To receive a copy of the DOL’s FACT SHEET that outlines the Proposed Rule, click here and we will send it to you shortly.

This is a complex issue and we are following this very closely in conjunction with local attorneys. If you would like support navigating this complicated road map, we can help you.

To enroll in our DOL Rules Change Alert list for updates on the status of this proposed change, click here.