New Overtime Rules May Mean Additional Payroll Expenses

On May 18th, President Obama announced the publication of the final Department of Labor (DOL) overtime rules.

The new rules update the Fair Labor Standards Act (FLSA) and make it easier for workers to receive overtime protection or other compensation. The reason for the change is the need to protect those who work more than 40 hours per week through expanded overtime eligibility and compensation increases. When initially released for public comment in 2015, companies across many industries voiced objection due to concerns of rising payroll and compliance expenses. Although some changes were made, there are only minor differences between the draft and final rules. To help clients, prospects and others understand these changes and how it will impact them, Hanson & Co., has provided a summary outline of key issues below.

Key Issues

  • Salaried Worker Exemption Increase – The full time salaried exemption threshold will significantly increase to $47,476 in annual salary up from $23,660 in annual salary. This means that any salaried employee that makes less than the new exemption ($47,476) will be required to receive overtime when weekly hours exceed 40.

  • Highly Compensated Employee (HCE) Exemption Increase – The HCE exemption threshold will also increase from $100,000 in annual salary to $134,004 in annual salary. This means that any HCE that makes under $134,004 may be required to receive overtime pay when weekly hours exceed 40.

  • Bonuses – Any bonus, commission or incentive pay awarded to employees may be counted toward 10% of the threshold (if it is paid out at least quarterly).

  • Automatic Adjustment – The overtime salary threshold will be updated every three years by the DOL based on a number of factors including wage growth. According to the rules, if an increase is to be implemented the changes must be published 150 days prior to the effective date.

  • Duties Test – According to the new rules, the required duties test for white collar workers will remain unchanged. This means employers still need to perform the salary level and salary basis test when determining whether an employee qualifies for overtime compensation.

Action Steps

The good news is the rules don’t go into effect until December 1, 2016. This means that companies have roughly six months to review employee pay and other policies to determine how they can come into compliance. It’s clear that most companies will need to start tracking time for salaried employees to manage hours worked and calculate overtime pay. In addition, many will need to update job descriptions, HR manuals and employee handbooks to reflect the changes.

Contact Us

The new Overtime Rules will have a significant impact on many companies. Not only will labor and payroll expenses increase, but new strategies for managing the HR side will also require attention. If you have questions about the new rules or need help determining its impact, Hanson & Co., wants to help. For additional information contact us at (303) 388-1010, or click here to contact us. We look forward to speaking with you soon.