Dedicated employees who commit to working hard to complete a project, meet increased production demands and drive innovation should be rewarded. In addition to their base compensation, other benefits such as retirement plans, health, dental and year-end bonuses are often given. The Department of Labor (DOL) recently issued, Final Rule – Overtime Update, which will impact Denver area employers. The details require companies to pay additional overtime next year under certain situations. Currently, an employee earning less than $23,660 annually is eligible for overtime when more than 40 hours is worked during a single week. However, starting January 1, 2020, the earning threshold will increase to $35,568. This dramatic shift means Denver employers are going to have to take action to review pay structure, existing employee resources and identify the costs associated with the rule change.
When is Overtime Paid?
The Fair Labor Standards Board requires an employer to pay salaried employees time and a half for any hours worked over 40 in a given workweek. White-collar employees who perform certain professional or administrative duties and are paid an amount that exceeds established minimums are exempt.
Impact on Employers
The obvious impact is the potential, and unexpected, increase in labor cost, depending on the type and structure of the business. Beginning with the first pay period including January 1, 2020, companies that rely on hourly employees that make less than $35,568 (annually) may need to pay overtime if more than forty hours per week are worked.
Starting at the same time, salaried employees will also be entitled to overtime (one and a half times normal salary) if they make less than $684 per week (reflective of the above-mentioned increase) and perform white-collar duties. An exception exists for those employees whose salaries exceed $107,432, known as the “highly compensated employee” exception.
Companies with exempt workers who make between $455 and $684 per week should consult with a Hanson advisor to gain clarity about the impact of the ruling. Generally speaking, to minimize impact there are three options:
- Raise their employees’ salaries to exceed the threshold
- Change employees’ statuses to nonexempt but limit overtime
- Change employees’ status from salaried to hourly
For those employees close to the highly compensated employee exemption threshold, management may want to consider issuing raises or year-end bonuses to exceed minimums.
Managing the Change
Accommodating these changes can be tricky but are certainly possible. If the solutions mentioned above exceed budgets for the coming year, then there are other steps that can be taken. A more proactive and involved employee scheduling system can be used to ensure staff is present when needed, but not at the cost of overtime.
Denver area companies that rely on lower-paid workers are likely the ones who will be impacted most by the new rule change. It’s important to consult with your advisor to understand the impact and identify solutions that can be implemented. If you have questions about the new rule change or need assistance with a tax, audit or consulting issue, Hanson & Co can help. For additional information please call us at 303-388-1010 or click here to contact us. We look forward to speaking with you soon.