Ready to Implement the New DOL Overtime Rule? Your PEO Can Help

overtime wagesIf you are anxiously waiting to hear the final ruling on the Department of Labor’s new overtime rule, you are not alone. Employers across the nation are concerned about how the ruling will affect their current employees as well as when the final ruling will be handed down.

What Does the New Rule Mean for Employers?

Proposed changes announced to federal overtime rules earlier this year mark the first significant raise in overtime eligibility since 1975. Significant changes include:

  • Increase salary threshold for overtime exemption from $455/week ($23,660/year) to $970/week ($50,440/year)
  • Annual updates to the minimum salary

The stated goal of the proposed changes is to provide overtime accessibility for workers who hold managerial titles, but whose roles include few managerial responsibilities and who routinely work excessively long weeks without fair compensation. Overtime changes would apply both to blue-collar and white-collar workers.

What Problems Could the New Rule Create?

The current salary threshold of $23,660/year is below the poverty line, leaving plenty of room for legitimate concerns about employee access to overtime. For this reason, there is considerable support for a threshold increase of some kind. However, there are also several problems with the proposed rule as it currently reads. As written, the rule would create an excessive burden for many businesses and may have an adverse on some reclassified workers. Employers have expressed three primary concerns about the changes:

  • No allowance for regional differences in cost of living and salary. Previous versions of the rule have taken into consideration the differences in cost of living in different geographic areas. According to CNN’s Cost of Living Calculator, for example, a salary of $45,000 in Atlanta is equivalent to a salary of about $75,000 in San Francisco. The impact on jobs and businesses could be significant on areas of the country with low costs of living.

  • Impact on nonprofits and small businesses. The overtime rule is designed to help lower and middle-range salaried employees who are not in charge of their own workweeks. However, because the threshold is so high, many executives of nonprofits and small business will find themselves in the nonexempt category.

  • Possible negative side effects for employees. Many employees who do not regularly work more than 40 hours per work will still be reclassified under the new rule. These workers may encounter less flexibility at work or reduced access to professional development opportunities. They may also be switched from salaried workers to hourly workers, a change which carries with it a perceived loss of status.

According to the Society for Human Resource Management (SHRM), the proposed changes could restrict organizations to the point that their ability to offer services would be hindered.

What Can Employers Do to Prepare for the Ruling?

Many of these concerns have already been expressed to the DOL via the open comments on the proposed changes. Now that comments have been closed, businesses anxious await the final ruling in order to bring their practices and policies into compliance within the narrow implementation window. Changes should be announced by late 2016. 

In the meantime, what can businesses do to prepare for employee reclassification based on the new requirements? That depends on how much risk you are willing to assume.

  • Wait until the final rule is released—Small businesses may be able to simply wait for a ruling before planning any changes.  With fewer employees on the payroll, the reclassification process should by manageable even if the implementation window shrinks to between 30 and 60 days as some anticipate.

  • Reclassify workers for different scenarios ahead of time—Larger employers, however, should consider preparing for reclassification by anticipating potential scenarios ahead of time. If they find themselves with just 30 days to implement, companies with a large employee base could struggle with compliance if they haven’t prepared in advance.

  • Monitor the presidential election—A riskier move might be to wait and see which way the presidential election goes before making any plans. If a Republican wins the White House, the rule could be revoked before implementation. If a Democrat wins, however, the rules will likely go into effect as planned.

  • Hope for a phased-in compliance date—Depending on the nature of the changes in the final ruling, the administration may approve a phased-in compliance date. This would make it more manageable for businesses that would be heavily impacted by the new policy.

No matter which way the ruling goes at the end of 2016, employers should begin to prepare now for the possibility of changes to their current practices and policies. Your PEO can make the compliance process much easier by remaining abreast of proposed changes and implementation requirements. They can also provide the data and assistance needed to determine which employees will need to be reclassified and how that will affect your payroll structure.

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