New Overtime Rules

Department of Labor updated overtime rules last December.

In general, beginning December 1, employees with salaries below $47,476 must be paid overtime at one and one half times their regular rate. If a person’s salary exceeds this amount and if their job duties are covered by an exemption, overtime is not required to be paid. The old threshold was a little more than $23,000 and had been in place for several years. The salary level is updated every three years based on cost of living.

Employers must pay hourly employee’s overtime.

How Will this Affect your Business?

The real question is how will this affect your employees?

Once that is determined, the business impact question can start to be answered. Employees who will be newly eligible for overtime will have incentive to work extra hours. However, will those hours be productive.

  • Bumping up to the salary threshold to avoid tracking and paying overtime.

Before you decide this, you have to be sure the job is exempt. While the definitions of what job duties are exempt have not changed, this recent change will move these issues to the forefront. Causing you to address them with employees.

  • Switching people to hourly salary.

People are paid only for the hours they work. How will that affect morale? Salary is often associated with a higher job status. Will going to hourly be seen as a demotion? Will once-salaried employees resent having to punch a clock and track their time?

Where Should You Start?

  1. Educate yourself about the rules. Here is a link to the announcement that covers the high-level points.
  2. Review job descriptions against exemptions. If anyone may qualify, contact a reputable human resource professional. They will help you determine: 1) If any jobs are exempt, and 2) If you can change jobs to make them exempt.
  3. Calculate how much overtime you would have paid over the past several months (or year if your business is seasonal). Remember to add in payroll taxes to your wage rate. Overtime must be paid if hours worked exceed 40 hours per week. A human resource professional can help you calculate this.
  4. Update your financial forecasts and see if you can afford keeping things as they are. If not, consider options such as making your processes more efficient, considering bumping salaries for exempt-eligible jobs, or going to hourly.  The answer may be different depending on the jobs, your company culture, who they interact with, and how far or close their current compensation is to the threshold.
  5. Engage your employees about the change.  Ask for input and really consider it. Also, talk with fellow business owners about what they are doing. Two heads are better than one.
  6. Purchase or subscribe to time-tracking software and train your people on using it.  The last thing to want on top of a stressful transition is software that is difficult to use or for which your people have not been trained.
  7. If the market will bear it, consider raising rates/prices or offering value packages. Customers may not like it, but they will be able to relate.

And Remember…

  • All time for non-exempt employees, salaried or hourly, will need to be tracked to calculate overtime. There are several affordable, cloud-based time-tracking software packages.
  • If people are used to answering email or doing work at home after hours, those hours also need to be tracked and overtime paid, if applicable.

Don’t Skimp

Contact a human resource professional and discuss the culture, morale, and workplace compliance issues that will change.

Develop clear and concise processes and rules. People make a business run – spend the time and money to get this right.  If you give this issue its proper due, your employees will perceive how much you value them. Regardless of the changes.

This may the time to undergo that efficiency program you always meant to start.

Since you have to track time anyway, have employees take an extra step and record what they do.Put some structure around how they describe the work so you can analyze it effectively.

So, What Now?

While these rules are not pleasant for everyone, like every change, they offer opportunities. Engage your customers and employees about how to see your way through this. You may end up in a better place.

SHAMROCK vCFO Services in Naperville, IL specializes in helping small and medium size businesses with strategy, taxes, accounting, and financial performance management. Steve Shamrock left big companies to help smaller ones energize the economy.