In part one of our three-part series “The New Overtime Rules”, we detailed the Department of Labor’s new proposal for salary thresholds and overtime eligibility. Today in part two we’ll be covering some of the ways this proposal could impact your business.
The U.S. Department of Labor’s long-awaited proposal for overtime pay requirements is now available to the public, and employers have begun cautiously reviewing the new rules to gauge what lies ahead. Originally attempted in 2016, the previous changes were blocked by a federal lawsuit, making the current proposal the first potential changes since 2004. Placing the new threshold at $35,000 per year (or $679 per week) up from $24,000, the new regulations would make over a million more workers eligible for overtime pay.
If this proposal takes effect, businesses both large and small will have to contend with some big changes – whether they like it or not. All businesses can prepare themselves by understanding the impacts this proposal will have on employee compensation, corporate policies, and overall business costs:
1. Employee compensation. Exempt employees making under $35,000 a year will be subject to some employer speculation, torn between two options: reclassifying these employees as non-exempt from overtime, with the obligation to track their hours, or give employees already paid close to $35,000 a raise, thereby keeping them exempt. Optional benefits such as disability and dental insurance may also be up for debate, as businesses reevaluate whom to provide new and potentially costly benefits.
2. The perils of pay compression. Reclassifying an employee as exempt by raising their salary may seem like an easy choice, but there are numerous implications to consider. Exactly how many employees should receive a raise to meet the new regulations? Will employees previously making above $35,000 require a raise as well? And what of those employees remaining just below the ideal salary to receive a raise? Due to pay compression tactics, friction between employees could easily arise and affect work quality, relations, and more.
3. Employee morale and internal regulations. Businesses will assuredly seek out ways to evade the pain points of the new policies, including restricting workers to eight-hour shifts, or giving a raise to some employees to avoid paying more in overtime. However, when an employer is completely absorbed in protecting the company at all costs, they may neglect how these changes can affect employee morale. Some workers may feel resentful of their new status, or misread the situation – assuming that the new changes are based on performance, and not federal regulation.
4. Remote and traveling employees. Remote employees now dominate the global workforce at a whopping 80% – and with all its advantages, it may also present some risks under the new proposal. It can be difficult to accurately track remote employee time, and frustratingly easy to overlook.
5. Employee time & attendance. With over one million U.S. workers switching to non-exempt status, accurately tracking their time will be of the utmost importance. Businesses still depending on manual processes will face an overwhelming transition with each worker soon to be below the new salary threshold. The overarching question remains who to transition – but this must be based on a reliable record of time, giving insight into current overtime habits and pay. Without an accurate, easily retrievable record of tracked time, how can an employer decide the best way to direct a newly non-exempt employee’s schedule?
With the public notice-and-comment continuing until May 21st, the new proposal will be undoubtedly subject to further debate. In this case, there is no such thing as too early – businesses can prepare themselves by understanding these potential impacts, and diligently evaluating, planning, and executing the right systems and processes now, so they may be in place if and when the overtime upheaval goes into effect.
Next up, the final post in our three-part series. Now that we’ve discussed the changes and what they could mean for your business, our third post will discuss the best practices to approach these potential changes – and how you can stay on top of the game.