The U.S. Department of Labor (DOL) released a proposed rule that would overhaul overtime wage payment in the United States. The new rule would more than double the salary threshold that employees must meet to qualify for overtime wage payment exemption—a change that could affect 11 million workers across the United States.

The FLSA requires that eligible employees be paid time and a half for all hours worked over 40 hours in a workweek. However, overtime rules do not apply to certain “white collar” workers, like executive, administrative, professional, outside sales, computer employees and some highly compensated individuals—these are known as the white collar exemptions.

Currently, the salary threshold (salary level test) for overtime pay eligibility under the white collar exemptions is $23,660 a year or $455 per week. The proposed rule would more than double the salary threshold to $50,440 per year or $970 a week. It would also increase the $100,000 salary level for highly compensated individuals to $122,148 per year—the 90th percentile of wages earned by workers in 2013. This figure is expected to increase by the time the final rule is implemented.

The proposed rule has been controversial because, if implemented, it would require employers to review employees’ exempt status, update overtime policies, notify employees of changes and adjust payroll systems. According to the Obama administration, the new rule could cost employers between $240 million and $255 million per year. Business leaders, though, believe the costs could be even higher.

Given the potential impact of this rule, it is important to start preparing now for potential changes to overtime regulations. The following are some strategies employers can adopt:

• Conduct an internal audit. It is estimated that more than 50 percent of all employer groups have misclassified their employees under the FLSA, although many do not realize it. An audit can help identify misclassifications and determine who will be eligible for overtime if the proposed rule is implemented.
• Give raises to employees who are close to the salary threshold. For instance, if an employee makes $49,000 a year and regularly works overtime, you could bump up the employee’s pay to $51,000 to avoid incurring overtime expenses.
• Develop more stringent overtime pay policies. Consider sending employees home after exactly eight hours, so you do not have to pay overtime costs. This policy can help encourage a healthier work-life balance among employees; however, output may decrease as a result.

A final rule is expected by July 2016.

Contact your NEEBCo representative with any questions you may have.