The Department of Labor is set to enact new overtime rules this summer—putting millions of workers back on the clock.
The details of the new rules stem from the DOL’s Notice of Proposed Rulemaking (NPRM), unveiled last year. The proposed rules were the first update to overtime regulations in the U.S. since 2004, mandating that workers earning up to $50,440 annually (or $970 a week) be made eligible for overtime pay even if they classify as a professional or manager under the Fair Labor Standards Act. The NPRM also proposed that this rate would be regularly adjusted to keep pace with inflation.
For two months last year, the proposal was made available for feedback and generated nearly 300,000 written comments. As with all NPRMs, the DOL is required to review and consider feedback ahead of implementing a final rule. At an event last month, Solicitor of Labor Patricia Smith revealed that the final rule would be published this July and would be enforceable after 60 days. If Congress were to attempt to block the measure through legislation, the president wields veto authority. President Obama directed the DOL to act on overtime back in 2014 and supports the new rules.
The current minimum salary for overtime exemption stands at $23,660—just below the poverty line for a family of four. Per DOL estimates, the new $50,440 minimum would extend overtime protection to an additional 5 million white collar workers. In 2015, only 8 percent of salaried employees were eligible for overtime—compared with 62 percent in 1975.
A Divisive Rule
Labor unions and congressional Democrats lauded the new rules when they were first announced last summer, as did presidential hopefuls Bernie Sanders and Hillary Clinton. A number of economists have also voiced their support. An Economic Policy Institute analysis found that the new rules would benefit 6.9 million women (51.3 percent of those impacted overall) and provide a much-needed earnings boost for minority workers. In another study, it was estimated that up to 117,000 new part-time positions would have to be created as employers start to offload excess hours from workers.
Business owners and Republicans have been largely critical of the changes. Last month, 108 congressmen signed a petition asking Labor Secretary Thomas Perez to reconsider the rule. Retail and restaurant lobbies came out in force against the NPRM, claiming that it would force businesses to reduce base wages, limit advancement opportunities, and spur litigation. The U.S. Chamber of Commerce claimed that newly non-exempt employees would lose out on benefits and work flexibility. Citing some of the same concerns, the Society for Human Resources (SHRM) came out publically against the rule last year and is actively lobbying against it.
As we forecasted earlier this year, the final rule’s release will be HR’s blockbuster event of the summer. Employers need to act now to stay ahead of the changes.
There are a number of ways your business can prepare. Reviewing compensation is a good place to start—employers should make it a priority to identify exempt employees earning between $23,660 and $50,440 annually, the current and proposed minimums for exemption. The next step would be to take stock of job responsibilities and determine whether employees’ duties are in line with their overtime status. From there, it becomes important to measure how many hours per week these employees spend working. This data can help determine if raising base compensation above the exemption minimum is more cost-effective than updating employee status.
Employers should also be mindful that overtime laws can vary on the state and municipal level. For example, California’s overtime law mandates that workers earning less than twice the state minimum wage cannot be classified as exempt. In any instance where federal and local overtime laws contradict, the law most generous to the employee prevails.
The DOL’s new overtime rules are set to make waves and will likely feature heavily in the press ahead of their July release. Until then, be sure you have a sound solution in place for time and attendance management. The Namely team will continue to monitor the new measures ahead of implementation.