Accuchex Blog

Labor Law Update: New Overtime Rules And Employers

Posted by Tristan Ruhland on Jul 7, 2016 9:30:00 AM

Overtime rules are changing on December 1st and if you're an employer and have full-time employees, it's very likely these labor law rules will apply to you.


Beginning in December of this year, an estimated 4.2 million more Americans will qualify for overtime pay under new rules from the U.S. Department of Labor. And it is quite possible that some of these people work for you.

Currently, most hourly workers, lower-wage earners, and non-managerial workers have to be paid 1.5 times their hourly wage when they work more than 40 hours in a week. Under the new rules, however, overtime will have to be paid to many more workers, including those on salary.

While this may be seen as a more equitable approach for these types of employees, the costs to employers may far outweigh any material benefit to their employees.

Questionable Benefits From the New Overtime Labor Law RulesFree Download: Payroll Outsourcing Guide

The real benefits to workers are small. Even according to the Department of Labor (DOL) only one in five of 4.2 million newly covered workers can expect overtime pay under the rule. In addition, the remaining eligible employees are likely to be moved into hourly jobs. 

In addition, the Labor Department has predicted that workers who do get overtime pay will see base wages reduced by an average of 5.3 percent, and the net pay gains for these workers will be less than $20 per week.

Not only will the benefits will be nominal, the regulatory and compliance elements of the new rule will add increased administrative costs.

According to Douglas Holtz-Eakin, president of the American Action Forum and a former director of the Congressional Budget Office, employers can expect to see more than 2.5 million paperwork-burden hours and nearly $2 billion in compliance costs in the first year alone. This is an alarming burden, especially for smaller businesses whose rate of birth has fallen below the exit rate of firms for the first time.

What Employers Can Expect Beginning December 1, 2016

Here are the highlights of new overtime rules:

  • Increases the minimum salary threshold at which a full-time salaried worker can be exempt from overtime rules from $23,660 to $47,476 annually, or from $455 to $913 weekly. This level will be adjusted every three years.
  • Employers can include non-discretionary bonuses and commissions to comprise up to 10 percent of the salary level.


Understanding Exempt vs. Nonexempt

Nonexempt employees are covered by Fair Labor Standards Act (FLSA) and by most state and city labor laws. Exempt employees are not entitled to overtime pay, but must meet certain criteria for pay and job responsibilities.

It is generally agreed that there are currently some inequities in the overtime rules. For example, back in 1975, FLSA overtime provisions protected 62 percent of all full-time workers. In 2015, however, overtime provisions protected only 8 percent of full-time workers.

The minimum exempt salary threshold was last changed in 2004, when rules regarding executive and managerial jobs were adjusted, which resulted in many more employees being legally considered exempt. 

However, many groups and employer advocates question the new minimum threshold. Their contention is that a white-collar supervisory or administrative job paying $20 an hour, or about $41,600, may be considered a very good job in many parts of the U.S.

Classification Options for Employers 

If you employ salaried, full-time workers who are paid less than $913 per week, you’ll need to decide how to respond to these new rules. Here are some options:

  1. Keep salaries the same, eliminate or reduce overtime. Be sure to monitor activity and hours to limit overtime.
  2. Raise salaries to the new minimum, enabling you to require unpaid overtime of qualified employees.
  3. Keep salaries the same, pay overtime. This is financially beneficial if overtime is limited or irregular and current pay is at the low end of the present minimum. Be careful tracking employees’ hours.
  4. Lower wages, pay overtime. This results in your expenses staying the same, but will certainly create disgruntled employees and high turnover.
  5. Hire more employees. If you regularly need a lot of overtime from current employees, you may want to consider hiring additional hourly workers to pick up the extra hours.

The Challenge for Businesses With Low-Threshold Exempt Workers

Employers will need to educate themselves or find professional assistance and resources that are available to them. 

Before the changes go into effect on December 1st, employers should assess which employees will be affected, and how the employer will want to respond. 

An updated payroll compliance strategy will help your organization meet its obligations, while providing accuracy and timeliness. So take time to understand the laws, prioritize employee and manager salary changes, and maintain accurate record keeping. In this way, you will make compliance a sure thing.

Another key step in maintaining HR compliance and increasing your company's cost-effectiveness is to consider outsourcing. A professional payroll management and workforce solutions provider such as Accuchex can offer much-needed help with Human Resources needs and questions.

Accuchex is a full spectrum Payroll Management Services provider offering expertise in Time Management, Insurance and Retirement issues, as well.

Free Guide: California Labor Law – What You Need To Know

Topics: overtime pay, california labor laws, labor law compliance, hourly, employee classification, payroll compliance

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