Across the country, salaried workers are already peppering managers with questions about the new overtime rules released by the Department of Labor (DOL). What may look like a pay increase to some salaried workers, may feel like a demotion to others.
The DOL released its final regulations on May 18, 2016, making changes to Part 541 governing overtime exemptions under the Fair Labor Standards Act.
Here are the key elements of the new regulations:
- Salary threshold changed to $913/week ($47,476 per year).
- Automatic salary threshold increases every three years (not annually) to maintain its level at the 40th percentile.
- The duties test remains unchanged.
- Effective date is December 1, 2016.
- Highly compensated employee (HCE) exemption is now $134,000 per year.
What does this mean for your organization? It is estimated that 35 percent of full-time salaried workers will fall below the threshold under the new rule.
The next steps you should take are to:
- Identify which exempt employees could be affected.
- Calculate the hours worked by affected exempt employees (you may have to ask them to track hours for a time).
- Consider which compensation strategy is the most appropriate.
- Conduct a compensation analysis for each employee.
The basic premise of the rule change is simple, according to Vice President Joe Biden:
“Right now, you’re guaranteed overtime if you’re an hourly worker, but if you’re salaried, you’re only automatically guaranteed overtime if you make less than $23,660. If you’re a manager on salary and you work an extra 10, 20, 30 hours a week, you often don’t get paid a dime more for those additional hours. That’s simply wrong. This goes to the heart of the defining issue of our time, that is restoring and expanding access to the middle class,”
How will this impact businesses and employees? According to the Wall Street Journal:
“Some employees will receive overtime and others will have their salaries lifted above the threshold, but still other workers may see their hours reduced. Employers could then hire lower-wage hourly workers to make up the slack, or shift work to salaried workers who earn above the threshold. Goldman Sachs economists estimated the rule would create about 120,000 new jobs in the year after it goes into effect. Those would likely be lower-wage hourly positions.”
The hardest part of the new overtime rules may be the cultural earthquake for salaried workers. For example:
- Salaried workers will have to, perhaps for the first time, track their hours (start times, end times, break times, and meal times).
- Time cards may make a salaried worker feel like they’ve been demoted.
- Benefits packages (for both salaried and hourly staff) may need to be reconfigured because below-the-threshold salaried workers may now be seen as de facto hourly workers.
- Salaried workers will now see what their actual hourly wage is; if they start to look at how many uncompensated hours they have given to the company, they may feel resentment.
- Salaried workers (and their managers) will have to become more productive and realistic to meet goals within the confines of a 40-hour work week.
- Managers will now have to assess the value of any overtime hours worked, and may have to give workers more free time to compensate for the additional overtime expense.
- If workers bring company phones and laptops home, companies will have to compensate them. Consequently, employers may ban workers from taking tech home, raise their salaries above the threshold, or install time-tracking software on their devices.
- If you don’t want to pay your staff to be available to your customers and partners, you may have to retrain your customers to call during business hours.
If you have questions about how this new rule will impact your organization, please reach out to Payday HCM HR Consultants for assistance with navigating your way through the new rule.