New regulatory changes proposed by the Obama administration, through the U.S. Department of Labor (DOL), would extend overtime benefits to millions of workers.
While not a minimum wage hike, the changes may cause many employers to react as if the federal minimum wage had been increased.
What the changes mean to employers
Under the federal Fair Labor Standards Act (FLSA), employees generally must be paid overtime if they work over 40 hours in a work-week. However, the law provides several exemptions. The most well-known of these are the professional, executive, and administrative, or “white-collar” exemptions, which are updated from time to time by the DOL. In order to fall under one of these exemptions, an employee must perform duties consistent with each exemption and make a certain weekly salary. The duties can be loosely characterized as managerial in nature and the current salary threshold for an “exempt” employee stands at $455 per work-week, or just under $24,000 annually.
The DOL is proposing to more than double that threshold in 2016 to $970 per week. The impact to businesses would be considerable, as the new rules would mean that all workers earning a yearly salary of $50,440 or less automatically would be eligible for overtime pay.
For now, it appears that the DOL does not intend to change the duties associated with each exemption. However, if this proposal becomes a regulation, employers will be forced to re-think their workforce planning strategies. Some companies will simply have to pay overtime to more employees, others may need to hire more workers to avoid paying overtime, while some may elect to scale down their operations so that current employees do not work over 40 hours per work-week. Each scenario comes with its own set of costs and consequences.
Monitor closely - have a game plan
Employers should resist the knee-jerk reaction to simply hire more workers without due consideration. For some businesses, hiring more employees could cause the company to be deemed a “large employer” under the Affordable Care Act, subjecting it to additional health coverage obligations.
The best advice for companies now is to monitor this issue closely and begin to formulate a game plan well before the proposal becomes law. Workforce planning is no easy task and businesses can benefit from consulting with professionals with experience in FLSA laws and other employer regulations.