New Overtime Policy Effects Workforce Budgeting

March 20, 2019
Author: Tyran Saffold Jr

A new overtime rule could make over a million more Americans eligible for overtime. For some employees, that will be a huge plus but for those employers, there will be a sharp increase in payroll costs.

Overtime Law

On March 7th, 2019, the U.S. Department of Labor (DOL) issued a notice of proposed rulemaking (NPRM) regarding overtime pay based upon its authority under the Fair Labor Standards Act of 1938. The DOL plans to raise the salary level for employees who are counted as “exempt,” or unable to earn overtime pay from $455 per week ($23,660 per year) to $679 per week ($35,308 per year).

See Proposed Overtime Rule

Under the DOL’s 2004 rules, employees who earned a weekly salary of $455 ($23,660 per year) or less, would be eligible for overtime premium pay at least 1.5 times their regular rate of pay if they worked more than 40 hours a week. Under the proposed rule, the standard salary level would increase to $679 per week ($35,308 a year) or less. For salaries above this level, the eligibility for overtime will vary based upon job duties.

In a final rule published on May 2016 during the Obama administration, the standard salary level was set at $913 per week ($47,476 per year), which would bring 4.2 million employees under the overtime rules. The standard salary level proposed in the new rule is $12,168 ($47, 476 minus $35,308) less than the level published in May 2016 and would affect 3.2 million fewer employees. However, the May 2016 rule was blocked and suspended.

A district judge in Texas granted a permanent injunction to block the rule, but the DOL appealed the decision to the 5th US Circuit Court of Appeals. The 5th Circuit stayed the appeal pending further DOL rulemaking. After reviewing the district court’s decision, public comments, and public listening sessions around the country, the DOL proposed the reduction in the salary level covering fewer employees and other terms in hopes of getting the rule implemented.
Outside of the standard salary requirements, there are other factors that will determine eligibility—mainly, a duties test. This test identifies if a worker is exempt from overtime pay requirements, their duties must fall within one of the following:

• Executive level
• Administrative
• Professional
• Computer employee
• Outside sales

With the new rule anticipated to take effect on January 1, 2020, how should businesses prepare for the upcoming change?

Review salary levels and duties to make sure your company is in full compliance with the current federal rules and budget for the new rule taking effect on January 1, 2020.

Evaluate the tasks of current employees to see who, if any, needs more help in completing their assignments within the 40-hour workweek limit. If the additional work is minor, considering hiring an intern or two. They tend to be less expensive than full-time workers and are driven to learn and perform.

Increase salaries of those who are eligible for exemption. Payrolls loaded with time and a half, per hour, above 40 hours a week, may come out as more expensive than bumping salaries over the threshold. HR teams should be able to conduct a cost-benefit analysis and provide the best strategy for the company.

As the labor market evolves, it is important that businesses prepare for the changes financially and administratively. Doing so will keep them in compliance and help minimize increases in their payrolls.