New Federal Overtime Rule on the Horizon

Prepare Now for the Potential Impact

The U.S. Department of Labor (DOL) plans to release new proposed overtime rules in early 2019. In March, the house and senate will revisit the annual amount a person must receive to be considered a “salaried” employee. This amount is currently $23,660, which was set in 2004. The Obama administration proposed the salary threshold move to $47,476 in 2016, but this increase was struck down by Federal courts. The DOL will once again recommend an update to the rule that raises the salary levels to be considered for overtime exemption.

Newly appointed Labor Secretary, Alexander Acosta, has weighed in saying he feels the required annual earnings should fall somewhere around $33,000 annually. The DOL is also considering whether salary levels should be based on regional or other cost-of-living considerations.

You may have had a plan your company was set to implement in 2016. Now would be a great time to pull those back out and revisit the implications in light of the new salary threshold. 

Whether you had a plan or not, you need to know how a new overtime rule could impact your company. Can you answer the questions below?

  • Are you certain that your employees are properly classified now?
  • Are you confident you understand whether bonuses or other types of payment can be considered part of an employee’s salary?
  • Are you willing to risk thousands of dollars in unnecessary payroll expenses?

As with the 2016 proposed rule, any new standard’s main provision will be to raise the minimum salary exempt employees must make to maintain their exempt status and increase the minimum salary for employees to be considered highly compensated.

Any new ruling will contain more subtleties than a cursory reading would indicate, and you will have more options than you might think. Understanding those subtleties can save you thousands of dollars; ignoring them can cost you more.

Now is the time to revisit your options. If you are considering reclassifying employees and changing compensation for hours worked, you will want to get ahead of any new regulation.

There are a number of things to take into consideration when it comes to mandated salary increases. First is the classification of your employees. Are you sure that your salaried employees actually meet the job criteria of the position? The FLSA offers very clear details on what defines a “salaried” employee. Check these carefully to ensure you have everyone classified correctly.

When the previous ruling seemed imminent, we worked with a client that thought they had everything under control. After examining the solutions they prepared for their five-member payroll, we were able to propose an alternative option that saved $16,000 a year. It’s easy to make mistakes if you aren’t aware of all the implications a proposed new rule could have on your individual situation.

What Should You Do Next?

The HORNE team knows that this task can be daunting, but if you start planning now, you can make the best choices for your business. We’ve broken the process down into three steps to help you take control:

  • Identify Your Impact – Start by identifying employees who are currently classified as exempt but who would not qualify under the proposed new $33,000 threshold. Now might also be a good time to review the job duties and tasks that are required of every exempt employee because these requirements have not changed. Ensure that all your exempt employees actually qualify for exempt status.

  • Weigh the Solutions – Raising the salaries of affected employees may be the most straightforward solution to complying with the proposed rule, but it may not be the best solution. You can project the impact to the bottom line of your company through forecasting tools. HORNE can help you look at all aspects of a proposed change to help find ways to mitigate costs and decide on a course that is right for you.

There are numerous options to consider related to compensation and possible staffing changes. Each solution has pros and cons, and you must determine what’s best for your business.

  • Implement and Communicate – When you’ve decided the best strategy for your company, having an implementation strategy is the next step. You will have a significant responsibility to communicate the change to your employees effectively. They may be concerned and resistant initially, but you can help make any transition smoother by involving your employees in the process as much as possible, as early as possible. There may also be process changes to consider – ignoring these could lead to issues once any changes become effective.

If you’d like to discuss your situation with our experienced team, please give us a call.

We are continually monitoring the situation and will keep you up-to-date on any regulation changes.

Any new ruling will contain more subtleties than a cursory reading would indicate, but understanding them can save you thousands of dollars; ignoring them can cost you more.