The Department of Labor this week finalized the nation’s overtime pay rules.
The final rule means that:
- The annual salary threshold for exempt employees has increased to $47,476 from the current $23,600 (or from $455 to $913 per week), and will be updated every three years. This means that over 4.2 million Americans will now be eligible for overtime pay.
- There is no change in the duties test to determine whether employees earning more than the salary threshold must be classified as nonexempt from overtime.
For highly compensated employees (HCEs), the final rule raises the annual HCE salary from $100,000 to $134,004.
Even though the overtime pay rule won’t be effective until December 1, virtually every business will need to be prepared now for the changes, and how it will affect its employees.
Below are five areas to review in your business to understand its impact on employee compensation, corporate policies, and overall business costs.
- Current employee hours and salaries. Look at the number of hours that people are working, which will determine whether or not they will could be reclassified as a non-exempt employee. Some companies could even consider a salary increase given the new changes. Besides analyzing the total hours worked, it’s also important to review the type of work being conducted. For example, if someone is consistently working over 40 hours but is spending a lot of time on time-intensive administrative tasks, could this be delegated to other workers to reduce costs or encourage them to focus on more critical and strategic activities?
- Employee benefits. Some benefits are mandatory under federal or state law, such as family and medical leave. However, other benefits such as disability or dental insurance are optional, so it may make sense to review who is entitled to some bonuses – particularly with any reclassified employees.
- Time tracking systems. To be able to track the hours that people work, an automated time tracking system will be a fundamental tool in ensuring accurate overtime pay. Whether it’s a time clock where people clock in and out of a shift or a timesheet available on PC or mobile devices, a comprehensive system is critical.
- Telecommuting and travel. The number of telecommuters has increased in the last decade – 37 percent of US workers now telecommute, with the average worker telecommuting two days per month. The new overtime pay rules could mean that some employers will need to reconsider their telecommuting policy and arrangements to better monitor people’s hours.
- Corporate policies and employee morale. It’s important that everyone in an organization – exempt or nonexempt – understands the new rules and whether it affects them. Particularly for reclassified employees, why they are being reclassified, how that changes their tasks, and how it affects their pay is crucial to communicate, as some workers may feel resentful about their new status. Individual discussions that underline that the changes are based on regulations rather than performance, as well as follow-up meetings will make a significant difference.
The new overtime pay rules have been subject to much debate since they were proposed. Now that the details in the rules have been finalized, it’s time for companies to carefully evaluate, plan and execute the right systems and processes manage how overtime pay is calculated, and how it will impact both your employees and bottom line.