Overtime Changes Coming

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President Obama this past week made final the Department of Labor's proposed rule making more than 4 million additional workers eligible for overtime pay.  The major change of the new rule requiring payment to employees at the rate of 1 1/2 times the employee's regular rate for hours worked over 40 in a work week is the change in the threshold salary amount triggering the overtime pay requirement.  The threshold salary, which has not been updated since 2004, is currently $23,660 per year or $455 a week.  The new rate set by the Obama administration, effective December 1, 2016, will be $47,476 for annual salary, or $913 per week.  There will be automatic updates raising the thresholds every three years starting January 1, 2020.  Employers who currently categorize employees as exempt under what are known as executive, administrative or professional exemptions will be subject to this change in the threshold earnings amount in order to rightfully claim these exemptions while compensating employees.

So what should an employer do between now and the effective date of December 1, 2016? 

First, employers should make an assessment as to how many of the over 4 million workers who will benefit from this rule change are among their employees.  Employers should assess how many overtime hours employees are currently working, that is, how many hours beyond 40 hours do each of your employees work per week.  If employers are not currently tracking this data, they should start doing so.  By doing this, employers will see the potential impact on labor costs by the implementation of this new rule and its new thresholds. 

Because the rule will not be implemented until December 1, 2016, employers have time to make staffing, workload, and compensation changes now to minimize the impact on labor costs.  Employers may opt to do a number of things, including cutting back on certain employee hours, or hiring additional part-time employees to pick up hours of full-time employees which would otherwise be thrown into the new overtime requirement.  Employers may even decide to raise the salary of those employees who are just shy of the new overtime threshold salary of $47,476.  Since this new rule was proposed, many in Congress have debated whether the raising of the threshold will result in an overall positive or negative for those it purports to assist.  With President Obama's signing of the final rule, further debate is academic and employers must now comply as it is now the law of the land.

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Harrisburg Magazine Readers' Choice 2011