Millions of additional Americans will become eligible for overtime pay under a new rule expected to be promulgated by the Labor Department any day now.
Currently, management, administrative and professional employees earning more than $23,660 a year are exempt from receiving overtime pay no matter how many hours a week that they work. Non-exempt employees must be paid time and one-half for all hours over forty worked in any given week. The rule proposed by Labor last summer would raise that threshold to $50,440. However, it is anticipated that when the final rule is promulgated, likely this week, the threshold will be in the $47,000 range.
As a result of the much higher salary threshold, many businesses will likely convert salaried workers to hourly employees and track their hours on electronic or paper timesheets. Businesses will then track hours much more carefully and instruct employees who are no longer exempt not to work more than forty hours in a week. To make up the productivity gap, some businesses will likely hire part-time workers. If overtime work cannot be avoided, some companies may reduce the base pay of affected employees to account for the extra money they will otherwise make in overtime pay, now that it will have to be paid at time and one-half.
Old habits die hard and it may be difficult to reign in overtime hours when both the employee and the manager are accustomed to putting in a lot of extra hours.
Once the rule is announced, there will be some type of grace period for implementation.
The final rule will almost certainly be a “major” rule, which means that the rule cannot become effective for at least 60 days following publication in the Federal Register. The government may well provide an additional “grace period” of up to 120 days following its publication.
Even so, some employers may have difficulty implementing a change to the salary threshold in such a short period of time.
Upon learning the salary level, employers will need to determine the formerly exempt positions impacted by the change and assess whether to convert any affected position to non-exempt, raise the salary level, and/or engage in some restructuring of the organization to better accommodate the new salary requirement. In addition, employers will need to consider the impact any structural change to formerly non-exempt positions will have on other positions in the company, be they exempt or non-exempt, on a going-forward basis. In addition, training of newly non-exempt employees on using the payroll system and avoiding overtime hours will become necessary. Payroll issues will have to be sorted out with the accounting department and/or your payroll vendor. Finally, state law requires written notice to employees of any change in practices or policies with regard to wages.
What should you be doing now?
Whether the effective date is in approximately 60 or 120 days or some other timeframe, if you have not already done so, you should identify now the positions that may be subject to a salary threshold increase to the $47,000 range. The review should consider how operations would be impacted by reclassification to non-exempt status and/or salary increases to ensure compliance and the impact of those changes on other employees in addition to those directly impacted.
We will alert you as soon as the new rule is published. Once the final rule is published, you can refine your preliminary planning in anticipation of publication.