11 Aug Business Owners: Budget for More Overtime in 2016- Possibly a lot More
Right now, the Department of Labor’s overtime rules state that anyone who is in a managerial or professional position and makes more than $23,660 per year is exempt from overtime. This means that if you are a salaried or exempt employee, not hourly or non-exempt, make over $23,660 per year, and your position is deemed managerial or professional your are not eligible to receive overtime, even if you work over 40 hours per week. The Department of Labor calls this the white collar exemption.
In 1972, 62% of the working population who were salaried employees, fell under the threshold for the white collar exemption. That means 62% of people were eligible to receive overtime did not receive it. Today only 8% of the working population fall under the current $23,660 threshold and the remaining 82% are not eligible. To put this in perspective $23,660 is equal to making approximately $11.38 per hour or $455 per week. To reiterate, as the threshold stands exempt employees who are deemed exempt under the white collar exemption are not eligible for overtime.
There is a proposed change in the works. The Department of Labor calls it “fair day’s pay for a fair day’s work.” This proposal raises the threshold from $23,660 to about $50,440 to account for the inflation rate since the initial regulations were implemented in 2004. In addition, this proposal will simplify the identification of nonexempt employees, making the executive, administrative, and professional employee exemption easier for employers and employees to understand. Bottom line – anyone making under $50,440 a year would be eligible for overtime pay.
What does this mean for businesses? Predictions are that many classifications of employees will change. Many employees who are considered salaried, but make under $50,440 or $970 per week will be changed to hourly or non-exempt. This can create a problem for companies. Employers have different benefit standards for their exempt and non-exempt employees. For example, if a company closed for an emergency, such as snow, the exempt employee would still earn their days pay, however a non-exempt employee would not. Some company’s allow the use of personal time to cover the closing. Some do not. There are approximately 11 million workers who earn below the proposed salary threshold with almost 5 million who will become newly entitled to overtime protection because of the increase. In addition, many of these employees regularly use company provided electronic devices such as smart phones or laptops to conduct business outside of regular business hours. At this time the Department of Labor does not have a proposal regarding this. Businesses have a lot to think about if this proposal pulls through.
In addition, it is estimated that the annualized direct employer costs will total between $236.3 and $255.3 million per year. This proposal will also transfer income from employers to employees in the form of higher earnings. According to the Department of Labor, the annualized transfers are estimated to be between $1.18 and $1.27 billion. This all depends on the level of the new exemption threshold.
Is this revision of the overtime regulations the right thing to do? Some say yes, some say no, either way it will become a financial responsibility on the business. Many questions are raised when you look at the amount of money this could potentially cost businesses. How will businesses afford this change? Will there be a reduction of force to compensate for the new overtime? Every business is different and each case must be carefully examined.
Robert Boonin recently spoke at the Society for Human Resource Management’s 2015 Annual Conference and Exposition the day the proposal was released. He cautioned that when the proposal is finalized there will be an “explosion of class-action litigation under the wage an hour statute”. He also said there will be some changes employers will have to make in order to satisfy the new proposal. Employers could raise salaries to $50,440 just to avoid paying overtime. Employees would welcome the pay raise. He said though, most employers may end up reducing the hours of these newly covered employees in order to never pay overtime. Unfortunately this would end up in a decrease for the employee, not an increase as the proposal had intended.
There are a lot of things to consider as a business owner when thinking about this new proposal. At this time nothing is final, but it is important to prepare for 2016. The final regulations will not be released until January 1, 2016. If you did not prepare, it could be damaging for your bottom line.
SHRM information taken from here
No Comments