About Time for Overtime Pay?
Starting Dec. 1, 2016 over 4.2 million salaried workers in the United States will be eligible for overtime pay due to new rules issued by the U.S. Department of Labor. This new regulation raises the overtime pay exemption to employees who earn more than $913 or per week, or $47,476 per year. Previously, the exemption was granted to those who earned $455 per week, or $23,600 per year. While the new salary more than doubles the old, this regulation was set forth in order to update a payroll system that has not been changed since 2004.
Because wage requirements have changed drastically in the last 12 years, employers often found it difficult to determine who was eligible for overtime exemption. As such, President Obama and the U.S. Department of Labor decided to modernize the threshold for overtime pay and hope to continue the trend by updating it every three years from Dec. 1 forward.
Employees who work over 40 hours a week are overjoyed at the opportunity to get paid time and half for working beyond their scheduled time slots. Employers, however, are not as thrilled. Many industries see this new overtime pay regulation as a burden—specifically affecting hospitality and farming, which rely on ever-changing hours and extended work weeks. Additionally, small businesses and non-profits are concerned that this new regulation will set them back on yearly profits and are scrambling to figure out how to make adjustments to budgets.
Many believe this adjustment was long overdue—something that should have been done years ago to keep up with inflation. Generally speaking, if the overtime pay exemption had been adjusted continuously over the last 12 years, businesses would be more prepared to make the transition now. Hopefully, with the initiative to keep the overtime rule continuously updated, businesses will have an easier time adjusting after this initial hump.
How to Make a Smooth Transition to New Overtime Pay Regulations:
While businesses still have five months before the rule takes effect, there are ways to alleviate the stresses of wage adjustment now. Technically, employers have three options:
- They can keep the salary of their employees the same and pay them additional time-and-a-half wages for every hour over their allotted 40 per week.
- They can keep the salary of their employees the same and hire new employees to distribute work, reducing the need for overtime hours.
- They can shift their current employee’s salaries to above the wage threshold and exempt them from overtime pay.
How can you determine what the right path is for your business? Check out these five tips from the Milwaukee Business Journal:
- Review employee compensation data (including commissions and bonuses) to determine which employees will be affected by the changes.
- Consider the options and adopt a plan. Employers should analyze employee hours worked and calculate the costs of increasing salaries or reclassifying employees to nonexempt status. If employees are reclassified to nonexempt status, employers should consider whether to maintain employee workloads and pay overtime, hire new employees to reduce overtime hours, or redistribute workloads to reduce overtime hours.
- Communicate the changes to affected employees after adopting a plan.
- Employers should also review employee handbooks and other employee policies to ensure that adequate time-keeping policies, meal and rest policies as well as off-the clock policies are in place and properly distributed.
- Ensure managers and supervisors are trained to enforce policies and procedures. Wage and hour litigation continues to increase. Employers should take steps now to minimize their exposure.
How can your business adjust to the overtime pay rules? Factoring may be the answer. Check out how our payroll funding services give your business the funds to pay your employees on time without exhausting your profits.