Department of Labor
After months of speculation, on May 18, the US Department of Labor released its much-anticipated final rule that raises the white collar overtime exemption threshold under the Fair Labor Standards Act (FLSA). Among other things, the Labor Department has doubled the minimum salary needed to qualify for these exemptions, from the previous level of $455 a week (or $23,660 a year) to $913 a week (or $47,476 a year), with increases every three years thereafter.
The new regulations take effect on Dec. 1, 2016.
The revised overtime pay regulations, will have a huge impact on businesses as at least 4.2 million American workers, will see an increase in the salary threshold for the overtime exemption from $455 a week ($23,600 annually) to $913 a week ($47,476 annually).
Businesses will need to start tracking hours for exempt salaried employees who are at or below the $47,476 threshold. Many employers do not currently track the number of hours their salaried employees work.
Doubling the salary threshold seems like an unusually large adjustment, but consider the effects of inflation. Using 1975 (when the threshold hit $250) as a baseline, the Economic Policy Institute calculated that full adjustment for inflation would result in a threshold of over $1000 per week (over $52,000 per year). Nearly 60% of workers qualified for overtime in 1975; in 2016, that number is only about 7%.
Lower-wage businesses and service industries like hospitality and retail are understandably against the new rule. A press release from the National Retail Federation (NRF) declared the new overtime rules to be a "Career Killer." NRF contends that instead of increasing salaries to raise workers above the overtime threshold, many businesses will simply reclassify professionals as hourly workers, removing their existing perks, flexibility, and certain benefits (not to mention, we add, the potential loss of more prestigious titles). Comp time, where employees work overtime in exchange for future days off, is not allowed for those eligible for overtime under the new rules.
What Effect Will the Rules Have?
Businesses claim the rules will cause economic harm, but what about the other side of the argument? DOL contends that the new rule will set employers back $1.5 billion annually, with $1.2 billion in increased overtime pay and $300 million in corresponding administrative costs. That's a non-trivial amount, but a Wall Street Journal blog points out that in the context of America's nearly $8 trillion annual wages, the overall economic effect would be minimal.
DOL projects that 4.2 million workers will be directly affected by the change, and that another 8.9 million will be indirectly affected by reducing the ambiguity of their status. In other words, they should have been classified as non-exempt originally, based on their duties. In total, those affected in some fashion make up less than 9% of the workforce. To put that in perspective, the WSJ blog notes that a national $15 minimum wage would affect close to one-third of America's workforce.The new overtime laws could be quite costly for employers, so don’t be surprised if many companies makes some changes to avoid signing everyone up for overtime.
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