Employers – there’s a new overtime law in the works! Now is the time to take an assessment of your employees and prepare for some potential changes in employee payroll.
On March 7th, the US Department of Labor announced a proposal that, if finalized, would classify more than 1 million white-collar workers as eligible for overtime compensation. This would leave many employers with the decision to either raise wages or reclassify their workers.
Currently, under the Fair Labor Standards Act (FLSA), there are two qualifications an employee must meet in order to be legally exempt from overtime compensation: an employee must earn more than the minimum wage threshold of $455 a week ($23,600 a year) AND perform certain job duty qualifications. The proposal would bump the minimum threshold up to $679 a week ($35,508 a year), allowing more workers to qualify for overtime pay.
The proposal also plans to raise the minimum wage threshold for highly compensated employees. As of now, all highly compensated employees earning $100,000 a year or less qualify for overtime pay. The new proposal would bump this minimum up to $147,414 a year.
It’s been 15 years since a change in the threshold, though there have been many proposals – including President Obama’s proposal to double the current exemption minimum.
The proposed rule isn’t planned to take effect until January 1, 2020. Now is a good time to assess your workforce and address the following questions: Which workers are making less than $35,508 a year? Do your employees work many overtime hours? Are any employees exempt from overtime based on job duties?
Consider the following in your decision making:
The proposal allows employers to use non-discretionary bonuses and commission to satisfy up to ten percent of the standard salary level. With this rule in effect, an employer could pay an employee $611.10 a week and push their yearly rate just over the minimum threshold of $35,308 if they distribute bonuses or incentives equaling a total of $3,530.80. Note that this number, 10 percent of the minimum threshold, would be the highest amount you could use to satisfy this rule.
Reclassifying employees can be costly. If you decide that reclassifying an employee is a better financial decision than giving them a raise, be sure to consider the administrative costs you may face, having to calculate overtime pay and keep track of workers hours. Know that reclassifying will also be an adjustment for many workers, who might not be used to logging hours or being paid on an hourly basis.
Some employees may view reclassification as a downgrade. Though reclassification would certainly not be a downgrade, employees may be inclined to think so, especially if surrounding employees earn a raise and they don’t. Be prepared to tackle this issue, assuring newly reclassified workers that this is not a demotion and that they will now be compensated for overtime pay.
Whether or not this overtime rule passes, it’s best to be prepared. Taking time to assess decisions on an employee-to-employee basis is key, considering the best outcome for both your company and your employee. As an employer, you’ll be responsible for making sure each employee is fairly classified and you should always be able to prove why an employee is legally exempt from overtime.
To keep up with the progression of this proposal, frequent the DOL website. If you’d like to be involved in the decision, the Department will consider all timely comments in developing a final rule.