Overtime Overhaul: Does Your Business Have a Plan?

EwingMany employers are still reeling from the impact of the many changes in employment law that we have seen over the past few years. Employers have experienced many impacts to the people-side of their business including the ACA, the NLRB’s joint-employer ruling and the new minimum wage for Federal contractors ($10.15 per hour, by the way).

Well, the changes continue as the Department of Labor (DOL) has introduced updates to the Fair Labor Standards Act (FLSA) that will be effective Dec. 1, 2016 (DOL Wage & Hour Division, Final Rule: Overtime, n.d.). The FLSA governs, in particular, the overtime regulations determining who is, or is not, eligible to receive overtime pay. The overtime provision of the act requires qualifying employees to be paid time and one-half for hours worked in excess of 40 per workweek.

So what is the big deal? Well, currently, there is a threshold of $23,660 per year for the overtime requirement. Basically, if anyone makes less than this amount, they must be paid overtime regardless of their position or classification.

These new changes that were announced on May 18, however, will raise this threshold by over double the current amount. The DOL has announced that the new threshold has been increased to $47,476 per year. Additionally, this minimum threshold will be adjusted automatically every three years. What does this mean for employers? It means that it is time to create a plan on how you will handle these changes come Dec. 1.

The first step is to not panic, put a plan in place and be ready for the changes when they come. The next step is to perform an audit of your payroll. How many employees do you have earning below the new threshold? Then, how many of these folks are not currently eligible for overtime? This may include management or professional staff that are currently considered exempt according to the FLSA.

These are the individuals and positions you are going to have to analyze and make critical decisions. Options include simply making these roles hourly and pay overtime. But remember, this means that you now must track all work hours during your designated workweek. This not only means that these individuals will most likely need to clock in and out, but you must make arrangements to capture any time they are taking calls or working on their computer outside of “normal” working hours.  Though this option may seem simple, it could potentially limit the effectiveness of these employees as they now worry about hours rather than the job.

Another option is to simply raise these salaries to the new threshold. This will allow the individual the flexibility to work as needed and take away the administrative burden of tracking time. This should be a joint conversation with finance to ensure you are able to still meet budgetary requirements.

Other organizations are looking at the cost impact of both of the options, and are choosing instead to limit any overtime and hired additional help.

In all cases you need to weigh the importance of flexibility, creativity and necessity of outside work. Each position may have different needs and, therefore, different potential changes. It is also important that, as an employer, you are becoming familiar with the FLSA and its requirements. More information can be found at www.dol.gov/whd/flsa/

Jennifer Ewing, SHRM-SCP, SPHR is a partner with Human Resource Partners in Traverse City and works with employers to improve the people-side of business.