You might not know that in early 2014, President Obama signed an executive order that directed the United States Labor Department to reform its current overtime law and system as a whole. Since this occurred, there has been a lot of confusion, and conflicting numbers and statistics being thrown around, so we wanted to take a few minutes to let you know what this overtime reform actually means.
Let’s start with the current overtime system. Currently, overtime must be paid to any salaried employees that make under $23,360.00 per year. If said employees make over $23,360.00, and perform any type of managerial task, they are not required to receive overtime pay.
With Obama’s new plan, the wage threshold will be raised to $50,440.00 per year. Meaning, employees that make less than $50,440.00, will now receive 1.5 times their hourly rate for any hours they work over 40 in a single week. By some estimates, this means that the average business owner can expect to pay around $2,400.00 extra dollars per employee, per year. However, all that is truly dependent upon how many overtime hours each employee actually receives.
It’s important to know that in response to the new overtime rule, employers can:
A.) Pay time and half for overtime work.
B.) Raise workers’ salaries about the new threshold
C.) Limit workers’ hours to 40 per week.
D.) Some combination of the above.
This final bill will become effective on December 1, 2016, giving employers more than 6 months to prepare.
This bill will update the labor standards found in the Fair Labor Standards Act of 1938, so some would say that this is a long time coming.
Because this bill is technically a “rule change”, which is analogous to an executive order, it doesn’t have to pass through Congress. Obama announced a few months back that if Congress wasn’t willing to work with him to help reconnect the economic fortunes of the middle class to the growing economy, he would find a way to do it himself. It appears he did just that.
Why make this change? Because the old law needed to preempt the possibility that some employers might just label someone a salaried worker to avoid having to pay time and a half. This caused a salary threshold to be introduced, below which workers were automatically non-exempt. The problem with the threshold, is that it wasn’t regularly adjusted for inflation, so it has fallen way behind.
While this all sounds like a good idea, some negative arguments are that the labor limitations some employers may implement, will spur the labor forces best and most motivated workers, who usually worked overtime with no expectation of extra pay, to stop putting in that extra work. There also is going to be increased cost anyway you look at it. Either employers will pay their salaried workers for their overtime and increase labor costs, or they will cut their salaries/hours and hire part time workers to pick up the slack, therefore, increasing hiring, and scheduling and management costs. And this is not even taking into account increased regulatory fees and possible fines.
Hopefully that helps you understand this new Overtime Reform Bill!
What can you do now to prepare for this change?
1.) Get time-tracking and payroll software. You will want guaranteed documentation to prove you are following the new requirements by the Labor Department.
2.) Start thinking through and planning your labor strategy now.
a.) Determine how many overtime hours your employees work on average per year.
b.) Take that number and multiply by 1.5. This will give you an estimate of the amount extra you will have to spend in labor costs.
c.) Figure out if you can afford to raise your labor budget that much for the quality of work you are getting from your current employees.
3.) Give salaried employees plenty of heads up on the changes.
4.) Clarify job descriptions and task lists for all employees.
Be diligent! Changes are coming! And as always, if you need help, we are just a phone call away!
Huffpost Business website
The Washington Post