Will I have to start paying overtime soon?  

Astute employers are reviewing available options to mitigate the potential economic impact of the imminent release of new federal Fair Labor Standards Act overtime regulations. The Department of Labor estimates that average annualized direct employer costs could total between $239.6 and $255.3 million per year.

If you’ve been out of the loop and are wondering why this is such a controversial issue, here’s a quick rundown:

In June 2015, the DOL announced that it had proposed a rule to increase the required minimum salary for most Fair Labor Standards Act (FLSA) exemptions from $455 to $970 per week.  This rule would result in millions of workers across the nation to become eligible for overtime pay when exceeding the 40 hour work week, says the Economic Policy Institute.

This becomes controversial because it would affect smaller businesses, businesses that would be unable to afford these increased overtime charges, forcing them to either close shop or reduce their workforce.  It would decrease morale, since employers would be unable to increase their employee’s salaries, and could lead to an increased burden upon those exempt from overtime pay as their work load increases in order to compensate for the situation.

On the other hand, some argue that this proposal would be beneficial since by increasing overtime pay employees’ earnings would be more directly, and fairly, related to the time they work. Businesses would be less inclined to have low-wage earners working for longer than 40 hours a week, allowing the employees to enjoy their leisure hours and perhaps even incentivizing new jobs.

What else does this mean?

First off, one thing that wasn’t changed was the duties test.  The duties test, which defines what kind of tasks fall into the administrative, executive and professional work guidelines, remains unchanged but it does open up the opportunity to issue changes until the final exemption rule comes into effect next year.

Second, the outcome of these rules may heavily depend upon the coming election since the implementation of the rules will happen soon.  Depending on a Democratic or Republican win, it is possible that the rule, if implemented, will be repealed by a Republican candidate.

Can we, as employers, prepare?

Since the outcome is still an unknown, it is impossible to lay out a fool-proof plan; however, here are a few options to consider:

  • Increase salaries to meet the new minimum that will apply to most of the professional exemptions
  • Change salaried employees to an hourly status, and pay them for overtime hours (time and a half pay for hours worked in excess of 40 in a work-week)
  • Hire more employees, thus reducing the hours worked by others to reduce the total of overtime pay
  • Review patterns of hours worked. Can you make a one-time adjustment to decrease overtime hours?
  • Consider a “sliding scale”