Do you have salaried employees who regularly work more than 40 hours in a week? If so, depending on their annual wage, these workers will soon be eligible for overtime pay for those extra hours, under regulations finalized last week by the U.S. Department of Labor (DOL). According to the final rule, employers must begin applying this new overtime pay threshold on December 1, 2016.
These new overtime rules will have a vast impact on compensation across all industries, with the DOL estimating that 4.2 million currently exempt workers will be affected in the first year alone. What does it mean for your company? Let’s look at things you can do ahead of the effective date to prepare for compliance with the new rules.
Operational and budgetary factors impacted by new overtime rules
With the overtime threshold doubled to $913 a week, employees who earn $47,476 or less are now eligible for overtime pay as of December 1, 2016. This requires business owners and HR professionals to tackle a number of operational and budgetary factors, including:
- Evaluation of staffing, salaries and duties: Conduct a thorough review of your current staffing situation to discern which employees are now eligible for overtime based on the new salary threshold. Once you have a sense of employee eligibility, you can budget accordingly.
- Proper tracking of hours worked: In order to manage overtime costs and stay compliant, employers must become more diligent about tracking the hours of a larger amount of employees who fall above the new threshold. A reliable tracking system will help you pay the correct overtime earned, or give you an idea of which employees are close to crossing the overtime threshold under the new rules. Either way, having accurate data on hand to demonstrate hours worked and correct payment of overtime can help you avoid noncompliance penalties or respond to any inquiries from DOL regarding compliance.
Bonuses now count toward salary threshold but duty test unchanged
Though it did not suggest changes to the duty test in the proposed regulations, DOL solicited feedback as to whether the duty test for executive, administrative and professional employees required alteration. When employers expressed concerns about the cost and difficulty involved in such a change, DOL left the existing duty test unchanged in its final regulations.
Another aspect of the overtime rules is that for the first time, quarterly nondiscretionary bonuses and incentive payments are allowed to be counted as up to 10 percent of the new standard salary threshold. DOL also announced that the salary threshold would be automatically updated every three years, beginning January 1, 2020.
This is a significant change in employee compensation for which employers have six months to prepare. Businesses that need assistance applying these changes or understanding the impact on their bottom line may contact me at 717.394.5666 or dhoffer@rklcpa.com.
