New Overtime Rule And Payroll Costs

There is no easy way to sugar coat the message to you, the employer, that the cost to have employees will be increasing on Dec. 1. Your business is governed by labor laws and the U.S. Department of Labor (DOL) recently issued its Final Rule pertaining to payment of overtime under the Fair Labor Standards Act (FLSA), which will go into effect Dec. 1.

So what this means to businesses, large and small, for profit or not-for-profit, is that they will find themselves faced with a decision: Do I raise the wages of my employee to meet the $913 per week salary minimum? Or do I make my salaried employee an hourly paid staff member and pay for all overtime at the 1.5 hour rate? Or do I simply hire more people to reduce the number of hours that any one employee must work?

None of these three options come without a price and the bottom line is that it will cost more to have employees, even if they are not paid at the new higher salary minimum of $913 per week.

After receiving more than 270,000 public comments regarding the changes the DOL’s Final Rule is viewed as a “compromise” the changes are significant and heavily favor the employees.

There are four points you need to know:

1: The minimum weekly salary for exempt employees is $913 per week or  $47,476 annually for a full-time worker.

2: Nondiscretionary bonuses and incentive payments, including commissions, may satisfy up to 10 percent of the new standard salary level if paid on a quarterly or more frequent basis, and employers may make “catch-up” payments at the end of the quarter.

3: The minimum annual salary required for highly compensated employee exemption will increase to $134,004 for a full-time worker.

4: The minimum compensation requirements will automatically increase every three years going forward. The first one will occur Jan. 1, 2020, and the updated rates will be published at least 150 days before their effective date.

Here is the Final Rule in a bite size pack: A full time salaried employee must earn a minimum of $913 per week or $47,476 annually.

Again, what does this mean to you, the employer?

Starting Dec. 1, 2016, no employee will be exempt from the overtime requirements of the FLSA if they are paid a salary less than the new minimum salary of $913 per week or $47,476 per year, which is more than double the current minimum. For any and all salaried employees presently earning less than the new minimum, employers must decide the following:

1. To increase the employee’s salary to meet or exceed the new minimum.

2. To reclassify the employee as non-exempt and pay overtime for all hours worked over 40 in a week, in addition to complying with record keeping requirements.

What employers can, and should do now?

Either option can have a significant budgetary impact, especially for employers with large numbers of employees who are currently exempt but do not meet the new minimum salary of $913 per week threshold. Employers should utilize the notice period to analyze options and make educated decisions. Some employers may even need to hire additional employees to control overtime impacts.

Very recently as I was speaking to some of our non-profit clients, we discovered that many in the non-profit industry believed that they were not subject to the new Overtime Rule provisions. According to the Department of Labor, virtually all employers in the United States will be impacted by the new rule because any business or employee of a organization that does business, in any form, with another organization out of state will be involved in interstate commerce and therefore they will be covered by the Fair Labor Standards Act. For example, using copy paper that was received from an out-of-state vendor, making phone calls or receiving phone calls from an out-of-state vendor or client all equates to doing interstate commerce.

Reach out to human resource experts.

They can help you analyze your current staff’s status and pay rates to determine which employees fall under the new exempt/salaried minimum rate. They can also educate you and your staff about the new Final Rule and answer questions about how the change will impact them. And finally, they can show you why an easy-to-use, yet highly structured timekeeping system is necessary for compliance and why it is best to implement the changes sooner rather than later.

Kat Cunningham is the owner of Moresource, Inc., which provides insurance, human resource services, payroll, bookkeeping, time and attendance services to small and medium-sized businesses.