In 2014, President Obama instructed the Department of Labor to update the rules of overtime regulations. After taking into consideration the changes that needed to be made, the Department of Labor began to construct a new rule to raise the overtime threshold. The DOL plans to release the final rule later in 2016.
Under the Fair Labor Standards Act, employers are required to pay overtime to employees who are nonexempt from the overtime laws, including those who make less than the overtime threshold. Currently, for the compensation test, an employee must be paid on a salaried basis with the minimum salary being $455 per week or $23,660 per year. The DOL proposed rules raises the overtime threshold amount to $970 per week or $50,440 per year. If employees do not meet this $50,440 threshold amount, even if they are considered salaried and would otherwise meet the duties rule of an exempt employee, employers will be required to pay time and one half for any hours worked over 40 in a week.
What should you be asking about how this may impact your business?
Does your business have employees that are currently classified as exempt (not eligible for overtime pay) based on the duties tests, who fall into the pay range between the current $23,660 threshold, and the proposed $50,440? You may need to make a choice between a) reclassifying them as non-exempt and pay time and a half for hours worked over 40 in a week, and b) increasing their salary to $50,440 so that you may keep them as non-exempt. Consider quantifying both options based on historical hours worked, and any changes you anticipate in the future.
If you decide to reclassify these employees as non-exempt, will you decrease their rate to an hourly equivalent where you try to keep their annual pay budget neutral (factoring in for OT pay in their total budgeted pay)? If so, what will be the effect on employee morale? Even setting aside pay rates, some exempt employees may look at a change in employee classification to non-exempt as a demotion. Consider these risks in your decision.
Are you requiring adequate time reporting from these employees currently, or will timekeeping create additional administrative time and cost?
These are just the beginning of questions to ask. These new rules could become effective as early as mid-year 2016, so contact your HW&Co. professional or Kirsten H. Thompson, CPA, CGMA, Director of Human Resources, firstname.lastname@example.org, 216-378-7242, to help you navigate the decisions you will need to make soon.