Last month, the U.S. Department of Labor announced a proposed rule that will likely mean that more American employees will be eligible for overtime.
OT to Employees Making up to $35,308.
Under currently law (established in 2004), employers must pay OT to employees with a salary below $23,660 annually ($455/week) if those employees work more than 40 hours/week. The DOL's new proposal would require employeres to pay OT to those employees who make $35,308 annually ($679/week). Any OT for salary above this proposed amount would vary based on job duties.
Need to Coordinate with Employment Attorneys.
With a proposed increase in the salary threshold from $23,660 to $35,308, employers will need to assess: employee jobs, duties, and classification; the need perhaps to transition employees from exempt to non-exempt; and the effect on employee morale, as some employees perceive the receipt of OT based on an hourly wage as a demotion and demoralizing (that is, the employee is coming off a more "professional" salary and being evaluated under an hourly clock). This analysis is what my esteemed Employment brethren lawyers must do with employers.
Impact on 401(k)/403(b) Plans.
Note, that in the world of retirement plans under ERISA (the Employee Retirement Income Security Act), the DOL proposal regarding OT will likely impact the cost and operation of 401(k)/403(b) and other plans.
Increased salary threshold for employees -->
many more employees eligible -->
higher wages because of the OT inclusion -->
employer must increase money in contributes into retirement plans.
Employers will likely have to make even larger retirement plan contributions, as such employer contributions are usually derived from a definition of compensation that includes OT (read that as an effect on a company's bottom line). Then again, if employer plan documents exclude OT from the compensation definition when calculating contributions, employers and their retirement service providers will have to pay closer attention to nondiscrimination testing results. Of course, there's an opportunity for employers, through specific plan design choice, to limit the dollar impact on the employer who sponsors a retirement plan if the new OT rule comes into effect. That's my way of saying the DOL proposal impacts HR departments from both the Employment and ERISA angles.
For a related discussion on overtime, you may wish to review the March 29th column "DOL Plans to Clarify how Companies Calculate Overtime for Employees" that my partner and colleague Eric Meyer, a"nerdy employment-brain" (his words), penned re: clarifying which amounts an employer can exclude when calculating an employee’s regular rate of pay.