The Department of Labor announced the details of its new rule on overtime pay, which has increased the salary threshold for employees eligible from $23,660 to $47,476.
There will be no change in the duties test to determine whether employees earning more than the salary threshold must be classified as exempt from overtime; however, the threshold will be updated every three years.
The new rules will take effect on December 1, 2016.
The new rule comes with good intentions, as wages have either stagnated or declined since 1979. However, there has been much debate about the benefits that these updated regulations will bring.
Many businesses have voiced concerns that it will significantly increase payroll costs, disproportionately impact industries such as retail and nonprofits, and even fail to help the lower-income workers as businesses will be forced to cut costs and reduce wages and fringe benefits.
It’s no surprise that many businesses are bracing themselves for the extent that the overtime rule will affect them. Most certainly, there will be additional time and costs involved in assessing payroll costs, potentially reclassifying workers, ensuring wage and hour compliance, and communicating the impact of the rule across the organization.
The Department of Labor estimates that employers will spend $592.7 million to comply with the new rule.
The question is: Once the rule has been enforced, how much will your business really stand to lose or gain from the overtime pay rules?
Here are the seven extra costs that could impact your approach to addressing overtime pay and that could affect your bottom line.
1. Hourly wages and salaries
One of the first things that you will need to do ahead of the overtime pay rules taking effect is to review workers’ pay who are on cusp of the salary threshold.
Some employees may require salary increases so that the worker remains exempt from overtime, while others could be reclassified as nonexempt workers.
Another aspect to scrutinize is not just the number of hours that people are working, but the type of work that is being conducted. For example, are some of the activities that are being performed menial tasks that could be eliminated or delegated to others so that employees can also spend more time working on more critical and strategic activities?
2. Employee benefits
Any changes to an employee’s salary could affect what benefits he or she has, and what it means for overall payroll costs. In some cases, benefits could be eliminated with the overtime pay reforms.
While some benefits – such as family and medical leave – are mandatory under federal or state law, others – such as medical, disability or dental insurance are optional.
Again, some workers who are reclassified as nonexempt may find that they are no longer entitled to some bonuses – however, whether these benefits should be retained is part of a bigger consideration when it comes to staffing costs and employee morale.
3. Employee retention and morale
If your business decided to reclassify workers and notify them that their salaries don’t meet the federal threshold to remain exempt, this could significantly impact employee morale.
Some people may feel resentful if they are reclassified as hourly workers, as it can be perceived as a demotion, mostly due to a greater lack of flexibility in their work hours and a perception that they are no longer considered part of management.
As a result, some people may even consider leaving the company, which can affect other employees. Ahead of any changes, employers should take the time to explain the changes to their employees in response to the Department of Labor rules, and take the time to answer any questions or concerns.
4. Time-tracking systems
While virtually every industry has time-tracking systems, not all companies require their employees to capture when they are punching into a shift, or how many hours they are working each day.
With the new overtime pay rules, this will inevitably change as more people will need to track their time.
Fortunately, time-tracking systems have evolved so that they no longer are standalone solutions – thanks to cloud and mobile advancements, you can scale and integrate your systems in an instant.
There is a long list of systems available in the market today to track time. To support the needs of your workforce, the best solutions are highly configurable to capture and manage hours based on your needs, integrate with payroll systems for quick processing, and have an easy-to-use interface available anywhere, anytime.
5. Employee training
If your company needs to expand its time-tracking systems to more employees, many companies will also need to take the time to train workers on how to capture, manage, and approve hours.
Perhaps for the first time in their careers, reclassified workers will need to track when they start and finish work, as well as meal and rest breaks. The same people may also need to review and approve their co-worker’s timesheets.
An excellent time-tracking system will be intuitive in how it monitors hours. However, you’ll need to identify the nuances in people’s roles and familiarity with submitting and approving time, in line with your corporate policies and requirements.
6. Office space and/or travel expenses
One of the tough issues to grapple with when the overtime rules take effect is how to treat remote workers.
In our 24/7, always-on economy, we are accustomed to people checking emails and taking phone calls after hours. As telecommuters don’t work in the office, a concern is that they could underreport hours worked and then later claim that they worked off-the-clock at overtime rates.
This has led to some industry experts predicting that employers will eschew telecommuting policies and encourage employees to work more from the office instead. Again, it is important to know the nuances of how the new rule will impact your organization – and who will be affected.
7. Legal consulting fees
In fiscal year 2015, the Department of Labor’s Wage and Hour Division found a whopping 10,496 cases in overtime pay violations, totaling over $137.7 million in back wages owed to employees.
Any costly and time-consuming lawsuits can also have further repercussions on a brand’s reputation, so it makes sense to bring on additional legal resources to ensure that you meet your wage and hour obligations.
No matter what side of the fence you’re on, your business should establish a clear action plan to address the new overtime rules and understand how it affects your staffing and budget. While many companies could face an uptick in costs at the onset, there are a litany of benefits from the new rules in the longer term.
Rather than feel overwhelmed by a slew of possible extra costs, the new rules pose strong benefits in setting up solid processes and systems to ensure wage and hour compliance.
By gaining deeper insights into how people spend their time and finding ways to optimize their working hours, there’s a distinct opportunity to see this as a positive opportunity to drive greater employee engagement and wellbeing, productivity and profitability for your business.