Regulations That Will Increase Overtime Costs Moving Forward

Published by Meg Vergeront on

By now, employers are familiar with the proposed Wage and Hour regulations governing federal overtime exemption.  These regulations, as proposed, would, among other things, increase the minimum salary necessary (but not sufficient) to retain overtime exemptions.  The regulations would also change the rules with respect to the “highly compensated” exemption.  If you have employees that are classified as highly compensated, you should consult legal counsel for advice.

It is likely that the regulations will be finalized by the end of the year and will be effective in Spring or Summer of 2016.  Once in place, employees must be paid at least $50,440 to be exempt, assuming all of the other, current factors are met.  This means that employers will face tough decisions, such as determining whether to raise salaries and maintain the exemption or to classify positions as non-exempt and figure the hourly wage rate given the number of hours regularly worked to keep employees at the wages currently paid.

Given the timetable for implementing the regulations, now is a good time for employers to be proactive and determine the best approach.  Best practices to achieve this goal are:

  • Review existing exempt positions to determine if they are properly classified under current regulations.  Job duties change over time and what was once exempt may now not be exempt.  This will put you in a position to focus solely on the minimum salary requirement in determining whether positions that are exempt under current regulations should be or can be classified as exempt given wages paid.
  • For positions that would meet the exempt classification criteria given the current minimum salary level, review current salaries for those positions.
  • Consider which salaries you want to raise to retain exempt status and which cannot be raised due to budget constraints. 
  • Figure out the number of hours currently worked by each exempt employee to determine what wages would be if converted to an hourly rate. 
  • Consider whether to lower the hourly rate for those positions which will be reclassified from exempt to non-exempt to control costs so that total wage remain the same.
  • Consider whether you will reduce hours to avoid overtime.
  • Consider whether you will hire more employees to avoid overtime.
  • Consider how any changes to classifications and/or wages will be communicated to employees.  These kinds of changes can affect morale.  For example, many employees see a change from being salaried to earning an hourly wage as a demotion or reflection on performance.  Having a coherent strategy should help reduce the impact the changes.

Filed Under: employment law, wage and hour, overtime exemption, labor and employment

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