10 Ways Employers Will Be Affected by the Proposed Overtime Changes

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As a WAM-Pro, there are specific elements of the Department of Labor’s (DOL) proposed overtime changes that you will need to understand. So far, most articles have only reviewed the facts, but practitioners like you need more. We could ultimately see hundreds of effects as the ripples of regulation spread, but here are 10 critical ones to start with.

  1. The rules will be universal. Unlike the Affordable Care Act (ACA) that focused on full-time or full-time equivalent workers, the new overtime regulations could affect up to 11 million employees, according to the DOL.

 

  1. Employee classification will matter even more. Now more than ever, appropriate employee classification will matter. Not only do employees need to meet a certain salary threshold consistently, but they also need to perform exempt job duties. WAM-Pros will need to perform a careful assessment of each employee’s job duties, daily tasks, and activities to ensure that exemptions are appropriately awarded.

 

  1. Exemptions will be scrutinized. Changes to the “duties test” are not yet confirmed, but the DOL will most certainly look into misclassification cases more heavily as a result of this new regulation. WAM-Pros need to be up-to-date of the latest exemption rules and also aware on how employees truly spend their time.

 

  1. Every dollar will count. With the new salary level proposed at $50,442 annually, organizations will need to consider the entire compensation package they offer employees. Knowing which payments and gifts will count toward the regular rate of pay becomes even more critical because those may or may not put the employee over the threshold. This includes shift differentials, shift guarantees, bonuses, commissions, and even stipends for personal devices or health insurance.

 

Additionally, if employers raise an employee’s salary, they will also be subject to higher employment tax expenses. In some states, unemployment insurance tax rate schedules are tied directly to average annual wages, so an increase in salary could mean an increase in taxes as well. If employers hire more workers to avoid overtime, they could end up trading the cost of overtime for the cost of additional employment tax.

 

  1. Regular rates and hours may change. To avoid paying costly overtime charges, employers may begin to use one of several creative strategies. Here are just three:

 

  1. Employers may raise base wages for current employees to meet the overtime exemption threshold.
  2. Employers may slash or heavily restrict total hours so that nonexempt employees do not work enough to receive overtime.
  3. Employers may reduce base wages and keep hours the same so as to maintain the same costs.

 

In addition, exempt workers meeting or just barely above the threshold may take on additional work (without additional pay) as employers are forced to redistribute the workload in a manner that reduces labor expense.

 

  1. Hours worked policies may need revision. If employers used to think nothing of employees checking work emails at night or taking the occasional call after-hours, then they will need to think again. Employers can restrict overtime, but they cannot refuse to pay it if the time was actually worked. Policy enforcement will need to strengthen and certain behaviors, such as “catching up on work”, will need to change.

 

  1. Advanced technology will become indispensable. Managing time for these new nonexempt employees will be a critical daily and strategic activity. Employers will use time and labor collection tools such as time and attendance, scheduling, absence management, and analytic reporting tools to manage the new costs and compliance. For WAM-Pros, changing employees from exempt to nonexempt could require additional system configuration. WAM-Pros may need to add new users to certain systems or change user profile definitions so that the “manager” label is no longer considered exempt. Depending on the state, WAM-Pros may work with multiple types of overtime—daily overtime in addition to weekly. Employees unfamiliar with using this technology will need additional training.

 

  1. Culture shock is inevitable. For employees, changing the definition of “white-collar” means that some who have never tracked their time before may now  be required to report their actual start and stop time through a time collection device, terminal, or smart app. Those employees will also need to adhere to meal breaks and rounding rules. Workweeks will become more rigid and a tit-for-tat mentality could ultimately spoil the employer-employee relationship.

 

  1. Flexible scheduling remains a core issue. According to the Economic Policy Institute, an advocate for the impending overtime changes, “nearly an equal percentage ofworkers who earn between $40,000 and $50,000 a year compared with those who earn between $22,500 and $39,999 said they were never able to make changes to their daily starting and quitting times.” If more organizations had put advanced scheduling to use earlier, businesses may have avoided the need for regulation.

 

  1. Regulation fails to account for a changing workforce. On the other hand, some individuals may lose their much loved perks. The intent of this regulation is to positively impact the paychecks of many current employees, but unfortunately it ignores the new mentality among creative businesses. Many firms (especially start-ups and technology firms) place greater value on workforce productivity and outputs, not necessarily time spent working at the desk—giving employees the freedom of unlimited vacation or flexible working hours. Additionally, as the contingent or freelance workforce continues to grow, these regulations could be more stifling than liberating to a group seeking to redefine “work.”