Time on the Clock: Understanding New Overtime Rules
In May, the Obama Administration announced a long-expected update to federal overtime regulations. Sending ripples throughout the workforce, the rule revisions have a broad impact on how work is performed—and who is doing it.
The final rule was announced following a public comment period between July and September, 2015. During that time, more than 270,000 comments were logged.
Concerned because overtime standards had not been updated since 2004, the administration adjusted threshold salary levels that form the basis for payment of overtime. The new rule creates the opportunity for millions of American workers to receive overtime pay.
The revision applies to the Fair Labor Standards Act (FSLA). Some key points of the rule revision include:
- Change in threshold for salaried workers: The rule update has the biggest impact on white collar, salaried workers. Usually considered exempt employees, many of these workers spend long hours at work, but earn too much salary to be eligible for overtime pay. The new rule changes that. Under the old rule, a salaried employee who earned more than $23,600 was exempt from overtime pay. Under the upcoming revision, the same employee will have to earn $47,476, or more, to be ineligible for overtime pay. While this is a significant jump—it is less than predicted.
- Highly compensated employees (HCEs): The new threshold for HCEs is $134,000, an increase from $100,000 per year.
- Subject to change: In order for compensation to keep pace with the economy, automatic threshold adjustments are built into the rule revisions. Future updates will align with economic indicators on a three-year basis, with the next adjustment scheduled to be announced on August 1, 2019, and carrying an effective date of January 1, 2020.
- Effective date this time around: On December 1, 2016, the new rule revisions go into effect.
More than just adjusting wages, the new rule revisions require HR to reconsider how to look at, measure, and pay for work.
Potential impact of the new overtime rules
Critics and supporters of the rule revision agree that the changes impact who is truly exempt from overtime pay. Exemption classifications follow job duties, with exemptions generally allowed for professional, administrative, and executive positions.
For employees who regularly work in excess of 40 hours and receive less than the threshold wage for overtime, changes by HR and personnel managers to reach compliance could include:
- Simple math: Raise salaries of legitimately exempt employees to the threshold level.
- Pay overtime: There is no need to convert a salaried employee to hourly to comply with the new rule. If your salaried employee occasionally works overtime, track the overtime hours and pay the overtime. If the salaried employee routinely works overtime, consider raising their salary to save overtime pay—or review other options.
- Assess workflow and workload: Thoughtful assessment of workload, efficiency, proficiency, and work assignment might lead you to reconsider which employees are performing what tasks. Redistribution of tasks, responsibilities, and hours could mean bringing on additional staff, capping hours, or offering additional training to qualify exempt employees for duties that could justify raising their salary to the threshold level.
- Other ideas: For some employers faced with raising salaries or paying overtime, the result could be make do. Employers in the entertainment, public relations, and publicity industries warn that after-hours networking is tough to track—what is work, and what is career development, and how do they mix?
A potentially overlooked component of the new rules is maintaining FSLA compliant records. Utilizing software like our Brightmove Back Office offers the timecard capabilities needed to meet FSLA record requirements. Some of those requirements include tracking of data including:
- Identifying information
- Gender and occupation
- Daily and weekly hours worked
- Wage factors and rate
- Total straight and overtime earnings
- Wage deductions and additions
With multiple parties advocating for—and against—the new rule, only time will tell what long-term changes will occur as a result of the rule revision. Workload management may come into play, hours could be cut—or possibly people working overtime hours will be paid for the time spent.