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Department of Labor Overtime Proposal

By December 4, 2015General News

The US Department of Labor has proposed a rule change for 2016 that will affect potentially two thirds of all businesses.  The Department of Labor overtime proposal will affect businesses with salaried employees who make between $23,600 and $50,440.  According to the Department of Labor proposal, those employees would now be paid time and a half for overtime.

The “white collar” exemption to overtime pay has been in place since 1940.  The  rule states that if an employee has a pre-determined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed; the amount of salary meets a minimum specified amount (currently $23,600); and the employee’s duties are primarily executive, administrative, or professional, then the employee is exempt from overtime regulations.

The higher threshold means an employer could pay significantly more for overtime hours worked by professional, salaried staff.  An employee with a salary of $50,000 who works an extra hour every week would receive an effective salary of $51,875 with the overtime figured in.  This means effective planning and monitoring can be very helpful.

If the rule goes into effect, here are some planning ideas to consider:

– Consider bumping the salary of salaried employees near the threshold.  In the example above, the business would have saved $1,435 on that one employee who worked 41 hours a week simply by bumping their base salary above the threshold.

– Strictly enforce overtime limits and bring additional staff for support.  This approach may or may not be popular depending on the personalities of the staff.

– Consider converting salaried staff to an hourly rate that takes into account the additional hours they work during specific times or seasons.  This step can help significantly with seasonal work where professional staff may work 50 hours a week for a short period and then less than 40 at other times during the year.

If the proposed rule is approved, it will go into effect for 2016.

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