What’s so important about December 1, 2016?

That’s the day new federal overtime regulations take effect, greatly expanding the number of employees potentially eligible to receive overtime pay when the Department of Labor’s (DOL) regulations raise the salary threshold for the executive, administrative and professional white collar exemptions from overtime.

The U.S. DOL estimated the regulations would affect as many as 4.2 million American workers not currently eligible for overtime pay. Most of them — 4.1 million — will likely become eligible for overtime when they work more than 40 hours a week. About 100,000 other workers are estimated to likely receive raises, putting their salaries above the new limit.

The new regulations will double the minimum salary level for exempt workers under the executive, administrative and professional white-collar exemptions. The threshold will increase from $455 a week (that’s $23,660 a year) to $913 a week, or $47,476 a year for an employee who works the entire year.

Many more employees will potentially be eligible for federal overtime protections…

…especially in industries with lots of currently exempt managers who make more than $455 but less than $913 per week.  

How might these regulations affect your business?

The new DOL rules could:

  • Increase payroll expenses through the cost of additional overtime hours or higher salaries;
  • Hurt employee morale, if some workers believe a change in how they are paid seems like a demotion;
  • Require hiring additional employees to keep existing employees from having to work overtime hours;
  • Require more recordkeeping for certain employees; or
  • Force downsizing to reduce payroll costs.

In a recent survey* of 313 principals with U.S. companies employing fewer than 500 workers, Paychex found that 36 percent plan to move affected employees to non-exempt status, and 21 percent plan to redistribute hours to minimize the overtime hours worked by these individuals.

However, the survey also found that only 51 percent of business owners who responded are at least somewhat aware of the impending DOL overtime changes. The remaining 49 percent report being unaware of the new Overtime Rule. This will likely spell trouble for the uninformed.

How can you prepare your company for these changes?

December is only a couple of months away. Having a plan in place can make the adjustment go more smoothly.

Here are nine steps that can help you and your business:

  1. Review your payroll. Identify exempt employees whose salary is below the new threshold.
  2. Do these employees meet the applicable duties test for the executive, administrative or professional white collar exemption?
  3. Do these employees work more than 40 hours each week?
  4. Decide whether to increase their salary to maintain exempt status or move them to non-exempt status.
  5. Determine whether an hourly rate for new non-exempt positions is appropriate, and if so, determine what that rate will be.
  6. Identify workers now exempt from overtime under the Highly Compensated Employee exemption. Do they still meet the job duties criteria for the exemption?  Do you need to increase their salary to retain the exemption?  Alternatively, would they meet the salary and job duties criteria for one of the white collar exemptions?
  7. Review training for supervisors and managers on timekeeping and overtime policies. Be sure to address what is considered compensable time for nonexempt employees.
  8. Ensure that you have a written policy requiring all non-exempt employees to track their hours worked and a consistent way to track them, such as time sheets, a time clock or time-and-attendance software.
  9. Ensure that you have a written overtime policy indicating whether overtime hours must be approved in advance and by whom. Consider consistent disciplinary action if employees fail to follow the policy.  Always pay employees for overtime worked – whether it has been approved in advance or not!
  10. Review the recordkeeping requirements of the Fair Labor Standards Act and your state. Update your policies and procedures, if necessary, to ensure full compliance.
  11. Develop a communication plan. Consider educating managers and supervisors first on the changes that will take place, then affected employees and the staff at-large.

The new overtime rule will likely affect business operations across the country. Businesses may face increasing payroll costs and the potential for expanded recordkeeping requirements for certain employees. Download this free guide to find out how your company might be impacted and what you can do to prepare.

* From June 2016 Paychex survey with 313 principals of U.S. companies in a range of industries. Companies selected had fewer than 500 employees. Of respondents, 102 represented firms with fewer than 20 employees, 111 represented firms with 20-99 employees, and 100 represented firms with 100-500 employees.

About the Author(s)

Tammy Tyler

Tammy Tyler is a senior compliance analyst with a focus on employment law at Paychex, Inc., a leading provider of integrated solutions for payroll, HR, retirement, and insurance services.

Senior Compliance Analyst , Paychex
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