*Update: “A federal district court for the Eastern District of Texas granted an emergency request to delay the Dec. 1 2016, effective date for the new federal overtime rule until it can rule on two challenges to the rule itself,” said an article published by the National Restaurant Association on November 22, 2016. To view the court’s ruling, follow this link.
December 1, 2016 will mark a significant change in how all businesses handle overtime payments. On that date, the U.S. Department of Labor Overtime Rule goes into effect.
What is the Department of Labor overtime rule?
The rule increases the white collar overtime exemption threshold for salaried employees under the Fair Labor Standards Act (FLSA). It is intended to protect what the U.S. government perceives as a growing number of employees who work more hours than in a regular work week without being compensated for them. The rule increases the salary threshold for overtime pay to $913 per week, or $47,476 annually — about double the current threshold of $455 per week, or $23,600 annually. The new law is expected to affect at least 4.2 million American workers.
The law also states that that the thresholds will be increased every three years.
What does the final Department of Labor Overtime Rule mean for businesses?
A higher exemption threshold significantly increases the number of employees who are eligible to receive overtime pay, potentially creating financial challenges for retailers and restaurateurs. You may need to tighten your budget or adjust staff to comply with the rule.
The rule also impacts business decisions related to hiring, benefits, and flexible work opportunities. You’ll need to consider three primary options: raising salaries to the higher threshold, reclassifying affected employees without limiting overtime, and reclassifying affected employees while prohibiting overtime without authorization.
Each option involves new costs for your business. Raising salaries to the exemption threshold will mean incurring significant increases in operating costs and reclassifying employees and requiring authorization for overtime can mean new administrative costs and, of course, the cost of overtime pay when needed.
Be careful about reclassifying employees, however. If you attempt to classify an exempt employee as non-exempt now, it may raise a red flag with the employee that they should have been classified as non-exempt all along and should have received overtime pay. Communicate changes carefully with your employees.
You will also need to assess the tasks these workers are currently responsible for and if changes you implement will leave some aspects of your business neglected.
What should I do to prepare my business for the Department of Labor Overtime Rule?
Start by making sure you have a good handle on how many hours each employee works each week. You may not have a good idea of the amount of hours your employees that are currently exempt from overtime pay are working and the time it takes them to accomplish their current tasks.
Also, review your wage practices now to ensure when the new law takes effect in December that all of your employees are properly classified and your business is in compliance.
A time and attendance tracking solution, especially one that integrates with the point of sale (POS) and payroll systems, can be helpful to accurately track employee hours, as well as provide you with real-time reports on how many hours your employees have worked.
It is well worth the time to have your wage practices in order: As of December, businesses that don’t comply could be investigated by the Department of Labor, as well as open themselves to private litigation, possibly including class action lawsuits.
Take time to understand the new law, seek expert advice or legal counsel if needed to make sure your wage practices are in order, and keep a close watch on labor hours and costs to ensure your business will remain profitable in light of these changes.
