There could be significant changes on the horizon in terms of how much employers are required to pay employees for overtime hours. Following a memorandum on March 13, 2014, the Department of Labor (DOL) announced on July 6, 2015 that there is a proposal to change overtime regulations in an attempt to ensure that hardworking Americans get paid fairly. If this ruling does go into effect, it can have a considerable impact on both employees and employers. Here’s what you need to know.
Details of the Proposed Rule
The primary purpose of this proposal is to alter the original overtime policy that was set in place via the Fair Labor Standards Act (FLSA) in 1938. Under original regulations, eligible employees were guaranteed to receive time and a half for overtime hours. While this law was fairly effective in the past and covered the bulk of salaried workers, many people would make the argument that it’s outdated in 2015 and no longer effective.
Because the threshold for overtime pay is currently $23,660 a year or $455 a week and has been for several decades, it’s only applicable to 8 percent of workers. In the past, many workers earned $23,600 or less per year — but with inflation very few employees are eligible to receive overtime pay in 2015. However, with this new proposal, the threshold would change to $50,440 a year or $970 a week.
How it Affects Employees
There are two main ways that the new overtime regulation would affect employees. First, the number of workers who are eligible for overtime pay would increase dramatically. In fact, studies project that 40 percent (nearly five million Americans) would be eligible in 2016. Second, employees who consistently work overtime hours would earn considerably more than they have in the past. So by all accounts, this would be beneficial to hardworking Americans, and the core purpose of the proposal to protect workers from exploitation.
How it Impacts Employers
The implications for employers is simple — if you have employees consistently working overtime hours who earn less than $50,440 a year, then it’s going to take a chunk out of your profits. Or if you end up short-staffed and need certain employees to pick up the slack where they end up working over 40 hours per week, then it’s going to cost you. As a result, you may need to make adjustments to your scheduling structure or even consider bringing new employees on board to cover your business in case of a crisis.
On the other hand, if you rarely have employees working overtime hours, then this new rule will have little to no impact. Even with the higher exemption limit, it shouldn’t really cut into your profit margins. So at the end of the day, the impact of this proposal on your business really depends on how many overtime hours are worked during an average week.
While there are no guarantees that this proposal will come to fruition — and there will be no final ruling until one to three months after the DOL stopped taking comments on September 4, 2015, the general consensus is that it will go into effect. For that reason, it’s smart to prepare your business ahead of time and familiarize yourself with the details surrounding this rule, which you can find here.