What began as a memorandum to the white collar overtime rule in 2014 led to a final ruling on May 18, 2016 that will affect some five million white collar workers and their employers by the end of the year. According to the U.S. Department of Labor’s website, the effective date of the final overtime rule is December 1, 2016 when the standard salary level will increase from $455 to $913 per week for white collar workers in order for them to be exempt from overtime pay.
Now that we know the specifics and have an official effective date, what does this mean for employers and employees? More specifically, what are the pros and cons?
The Benefits of This New Overtime Rule for Employers
In all honesty, it’s hard to come up with any distinct benefits for business owners, and it’s likely to create hardships for many small to mid-sized organizations. If they decide to still have white collar employees work 40+ hours per week, it’s going to cut into their profit margins.
However, this increase in overtime salary could definitely have a positive impact on workplace morale and could create happier employees. In turn, it’s reasonable to believe that this boost in morale could lead to higher productivity and ultimately profitability in the long run.
It’s pretty easy to see why white collar employees would be on board with this new rule. Individuals who are eligible will more than double their earnings once it goes into effect and instantly become more financially stable. Those who consistently work 40, 50 or even 60-hour weeks can earn a better living and should experience a higher quality of life.
Or if an employer doesn’t want to pay extra, they may simply reduce an employee’s hours so that they don’t exceed 40. While this won’t lead to any higher earnings, it will result in a healthier work/life balance.
The Cons for Employers
These changes could be a big blow to many small to mid-sized businesses that are operating with a finite budget and may only employ a couple of vital managers who are linchpins to their organization. This could easily put added stress on employers and could diminish growth. Rural businesses in particular are likely to feel the sting.
There’s also the issue of litigation. Once this new rule goes into effect, it’s likely that the number of lawsuits against employers will increase, which could be detrimental if a smaller company gets hit with legal costs. If it’s apparent that your business is going to experience some negative consequences, it’s recommended that you consult this guide from the U.S. DOL to determine what your options are in terms of responding to the changes in salary level.
The main drawback for workers is that some companies may trim back their workforce to help with their bottom line and ensure compliance. For this reason, there could potentially be some downsizing in many industries, and some employees could lose their jobs.
A Final Note on FLSA Overtime
It’s also important to note that the DOL’s website states that “Future automatic updates to those thresholds will occur every three years, beginning on January 1, 2020.” This means that this is only the beginning, and periodic updates will occur in order to account for the rising price of living.
This update is big news for businesses employing one or more of the five million white collar workers who have previously been exempt from overtime pay. You can learn more about the details and what you can do to get prepared by reading this post.