The U.S. Department of Labor's proposed overtime rule will increase the number of employees eligible for overtime salaries by changing the yearly wage threshold. Companies that will be affected by this new regulation should have a plan in place for how to deal with the alterations and the number of employees businesses will now have to count for overtime pay.
A presidential memorandum
President Obama's call for workers to receive "a fair day's pay for a fair day's wage" was made a priority when he instructed the DOL to update the regulations that determine which employees are covered by the Fair Labor Standards Act overtime standards in March.
As a result, the DOL proposed a change to the laws regarding overtime work on June 30. The rules, if passed, would affect close to five million white collar workers across the country. The initiative doubles the qualifying salary and weekly wage for overtime pay. Currently, an employee has to earn either $455 per week or $23, 600 annually. If the proposal succeeds, the new threshold would qualify workers who make $970 per week or less than $50, 440 for overtime wages in 2016.
While this rule doesn't apply to workers labeled executive, administrative or professional employees, hourly workers are automatically eligible for overtime pay. Previously, workers who earned more than the current annual threshold were required to undergo a duties test, which determined if, based on their responsibilities, they were eligible.
The specifics of the duties test
Employees who meet or exceed the proposed thresholds will be exempt from overtime pay if their jobs require completion of particular tasks and responsibilities. In these cases, the DOL uses the duties test to determine if the obligations of certain workers disqualifies them for additional wages. In these cases, titles have little to no bearing. Instead, the DOL evaluates a person's roles, obligations and jobs. If these employees' duties fall under the categories of "executive, professional or administrative," the workers will be ineligible for overtime.
Examples of tasks that qualify someone as exempt include: supervision of two or more employees, management as a primary duty, office or non manual work, and those that require the exercise of judgment and discretion – this mainly pertains to professionals like lawyers, doctors, teachers, etc -among many others, according to the DOL.
Advanced planning for HR teams
The new regulation, if passed, is expected to add almost $1.3 billion to American paychecks, according to the LA Times, so companies and their human resources teams should prepare ahead for how to handle the changes they may face.
A contingency plan, complete with an internal audit, will help businesses decide what their next steps will be if the DOL's suggestions become law. Review of job classifications should be made a priority, in addition to potential promotions and raises that will affect overtime pay. HR teams will have to decide what is best for their business. Will it be less expensive to pay employees overtime or to increase their salary past the threshold? By looking over projected growth within the company, HR can plan ahead for both exempt and nonexempt employees.
In addition, HR should consult the current duties test to determine if those employees over the threshold will still be eligible for overtime pay. While the Obama administration is considering changes to the examination, HR should err on the side of caution and plan on using the current system.
Early planning will help HR avoid overtime lawsuits for noncompliance if the DOL's proposal goes into effect. Figuring out which employees meet the current threshold but whose pay will fall below the updated limit assists companies in allocating funds. It's vital that company policies meet the agency's rules and that employees are made aware of the benefits associated with both exempt and nonexempt status.
