BREAKING NEWS: DOL Enacts Sweeping Changes to Overtime Rules

Department of Labor Enacts Sweeping Changes to Overtime Rules for Salaried Employees: Salaried Workers must earn at least $47,476 or be paid OT Wages for every hour over 40 hours worked per week.

Wednesday, May 18, 2016: This update to the Fair Labor Standards Act has been in the works for almost a year, and the change will go into effect December 1st, 2016. The Department of Labor estimates two thirds of all businesses will have affected workers and somewhere between four and five million Americans will gain higher wages. Restaurant and retail managers, office administrators, and entry to mid-level white collar professional workers are among the most affected.

Checkright’s 6 Step Guide will help you navigate these new rules.

1. Understand the new rules: employees need to receive $47,476 or more in annual salary or they must be paid OT for every hour in any week they work over 40 hours. Other regular, taxable pay like taxable stipends or allowances can count to the $47,476, but irregular, discretionary pay types like bonuses and commissions count only 10% toward the total.

• Example: Sally makes $40,000 per year as an office manager and works 40 hours most weeks. The last week of each month, the office has lots of closings and she works 45 hours one week per month. In that week, she is eligible now for overtime pay. Her annual salary is divided by 2080 to determine her hourly equivalent, $19.23. For the 5 hours over 40 in the last week of the month, she must now receive time and a half or ($19.23 x 1.5) = $28.85 times the 5 OT hours, or $144.25 extra that week. Over 12 months, Sally will make an extra $1731 under the new rules.

2. Identify salaried employees making less than $47,476. Checkright’s payroll specialists will be providing a report to each of our clients listing which employees make under the threshold and what the employee’s annualized salary is currently.

3. Estimate how many hours over 40 per week these employees work in a year. Are there current records tracking the weekly hours? If not, ask each employee directly how many hours of overtime that employee works each year. Remember to take into account all the busy periods and seasonality of the business. Remember that even if a salaried employee works 44 hours one week and 36 hours the next, that employee will earn a full salary on the light week and Overtime pay on 4 hours the heavy week. Use the example above to determine what the annual cost of the salaried overtime would be for each employee.

4. Make choices on a per employee basis about what action to take. If one employee makes $47,176, simply give them a $300 raise and the issue is resolved. Perhaps another employee or two never work over 40 hours per week so there is no issue with them either. For the remainder of the affected employees, make one of the following choices:OT Rule Change

• Raise the employee’s salary to at least $47,476.

• Change the employee from a salaried to an hourly employee. Track the employee’s hours and pay them as you would any other hourly employee.

• Leave the salary as it is and pay Overtime as needed. Calculate the employee’s overtime pay rate according to the example above. Communicate to your payroll specialist at Checkright that you will now be paying Salary OT pay. Track the employee’s hours and report them with each payroll.

• Leave the salary as it is and prohibit the employee from working overtime. Track the employee’s hours worked. Monitor those hours as the end of the week nears and make sure to send the employee home if he is approaching Overtime. Remember, if the employee works Overtime, even if the employer has prohibited it, Overtime must still be paid.

 5. Communicate these changes with your employees. Many employees could view a change from a salaried to an hourly worker as a demotion. Make sure to revisit your policies surrounding time off and benefits as many companies have different policies for salaried and hourly employees that would doubly affect someone being reclassified. Employees who have to clock in and out for the first time may view that as a negative, especially when told to clock out for lunch and breaks. Employees just below the threshold may be happy to receive a raise, but be sure to consider the effects on other employees making just above the threshold. Do you have to also offer those employees raises to keep the office hierarchy intact? Each business owner or HR team should have a plan in place both for what changes will be made, but also for communicating these changes to the team of employees.

6. Focus on compliance by tracking the hours worked. The Department of Labor is going to follow these changes with employer audits where each company will have to produce hours worked records for its employees making less than $47,476. In the case of disputes, it is the company word against the employee’s unless there is time tracking. Notice in Step 4 above, 3 of the 4 compliance choices involve tracking time. Checkright has timekeeping solutions that are integrated right into the systems we already provide for your business. We have white collar timekeeping solutions where the employee can clock in and out on their own smartphone app on the same site we provide to check their paystubs. Checkright’s solutions are as affordable as $1.50 per affected employee per month for a time and attendance system. Let us know if you would like more information about our timekeeping products, but whether you use one of ours or not, make sure to document time worked moving forward.

 

Chart Illustrating Current and Revised Salary after Rule Changes

Name Current Salary Hours Worked New Annual Pay
Frank $30,000 48 hours/week $38,991.68
Kevin $40,000 50 hours/week $55,000.40
Lillie $45,000 44 hours/week $51,740.00
Kirk $35,000 60 hours/week $61,266.40

 

 

 

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