On June 30, the U.S. Department of Labor proposed a plan to change labor rules in regard to overtime work. The Obama administration believes the alterations to the existing rules would affect about 5 million people and cover about 40 percent of U.S.salaried workers.
Now vs. then
The overtime adjustment would raise the threshold for eligible overtime salaries. The proposal doubles the maximum amount a worker can be paid, both hourly and annually, to qualify for overtime pay. The current threshold, which was put into place in 2004, is $455 a week and $23, 660 per year. One of the reasons for the raise is because the past agreed-upon figure has been affected by inflation. Right now, hourly workers are already qualified for overtime pay, as are some salaried employees if they don't exceed the yearly limit of 40 hours a week.
The new plan proposes that employees who make $970 per week or less than $50,440 a year would be automatically eligible for overtime pay in 2016.
More modifications may be coming
This change would still not apply to professional, administrative or executive employees. The Obama administration asked for feedback on the already existing "duties test," which determines whether employees exceeding the current yearly salary threshold should be eligible for overtime pay, according to the LA Times.
The current duties test asks employers to gauge a worker's role in the business—whether that person performs mainly administrative, executive or professional tasks. If the answer is yes, then the employee falls under the "white collar exemption," which means that he or she is not eligible to receive overtime pay.
Since the new regulation could add almost $1.3 billion to employee paychecks in the U.S., the Obama administration is considering changes to the duties test to reflect the increase of the threshold eligible for overtime.
What effect will this have on companies nationwide?
U.S. businesses will face a human resources transition if the proposed regulation is passed. There is a chance many companies will encounter ongoing costs or a one-time implementation fee with the approval of the new rules. To avoid further charges from the DOL, there are a couple of steps HR teams can take. A good action is to conduct an internal audit, according to Business and Legal Resources. Take a thorough look at job descriptions and the skills associated with them to ensure the right people are satisfying the job's needs. It's also helpful to gauge what employees fit the current salary threshold for overtime but will be under if and when the new law is in place.
By completing a company-wide review, you can better understand what changes need to be made, whether they're in payroll or operations.
Not a law yet
There are many questions regarding the future of these new rules, but one of the larger concerns is how the proposed new law will transition over time. President Obama hopes to tie the overtime pay regulation to the rate of inflation or the median yearly salary. That way, the index can be regularly adjusted to match changes in the economy.
Yet, while this proposal has been released, it still has many steps to complete before it can become law. Next, the Federal Register will receive a published account of the rules that will be reviewed for 60 days by the DOL, according to Varnum LLP. During this time, both citizens and members of the government can comment on their reasons for or against the new rules. After the consideration time frame is over, the DOL will make a decision whether to write the law in or dismiss it from the Federal Register.
The proposed law regarding overtime pay will be a game-changer for businesses and their human resources administration. By staying up to date on the current progress of the possible regulations, companies can ensure they are prepared for whatever changes are necessary if the law is passed.
Tracking payroll changes by implementing a web-based HRIS application is an excellent way to report on wages.