Payroll/Taxes

Proposed Overtime Rules Could Be Costly for Businesses

Proposed overtime rules

Federal overtime rules require that employers pay eligible non-exempt employees at least 1.5 times their regular rate of pay when they work more than 40 hours in a workweek.

Now overtime pay could be made available to far more employees under proposed revisions to the federal overtime rule, which increases the threshold for white collar exemptions from overtime provisions.

Proposed last summer by the Department of Labor (DOL), the proposed rule would increase the weekly salary threshold for the Administrative, Professional and Executive white collar exemptions from overtime pay provisions. Under the rule, the DOL recommends the minimum salary level for exemption from overtime pay be set at the 40th percentile of earnings for full-time salaried workers, estimating the 2016 level to be about $970 a week, or $50,440 per year.

The rule could potentially expand the number of employees eligible for overtime protections from about 8 percent of the salaried workforce to 40 percent, where employers chose not to increase existing salaries, according to the Washington Post. (You may read more about current overtime rules on the U.S. Department of Labor website.)

Under the overtime pay rule yet to be finalized, certain types of employers may feel the impact more than others. Restaurants, daycare facilities manufacturers, and other companies that tend to have many managers and other salaried employees who earn more than $24,000 a year but less than $50,000 could face the largest cost increases due to the proposal, experts say.

Companies will likely make some strategic changes, however, to reduce the burden of the higher salary thresholds if the overtime rules do indeed take effect as currently proposed.

Cecilia Boudreaux, human resources director for the Regina Coeli Child Development Center, a Head Start program in Robert, Louisiana, told National Public Radio that the proposed rules would increase her center's costs by an estimated $74,000—as she has decided to re-classify 26 of her 35 currently exempt employees as non-exempt and to pay them  overtime for hours worked over 40 in the workweek.  This generally occurs whenever a parent is late picking up a child or if there's a building emergency.

The proposed rules could result in the childcare center making a decision to either furlough employees or change some to an hourly rate and cut their pay, Boudreaux says, which may hurt employee morale or increase turnover rates.

Despite the concern among some employers, advocates say raising the overtime pay threshold would raise the incomes of millions of lower-paid workers and benefit certain businesses

The Department of Labor is expected to release the final rule in late 2016, including a 60- to 90-day period before any effective date.

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