Finance News & Insights

New overtime rules out – and they pack a punch to the pocketbook

Better late than never? Maybe not, when it comes to the just released proposed rules changes to overtime eligibility. 

President Obama finally announced the proposed revisions to the Fair Labor Standards Act (FLSA) just before the holiday weekend.

And they’re going to cost a lot of companies a lot of money.

It’s estimated some 5 million U.S. workers will now be automatically eligible for time and a half pay when they work more than 40 hours in a week.

And no doubt some of those people work for your company.

The new threshold: $50,400 a year. That’s a massive increase over the $23,660 threshold that’s been in place since the 1970s. In fact, it was higher than most experts predicted the new threshold would be over the past few months.

One thing to note: This won’t be an ever-moving mark – the new threshold will not be continuously adjusted for inflation.

Changes beyond the threshold

And that’s not the end of it. Looks like there are more changes on the horizon.

The feds have also set their sights on other parts of the eligibility puzzle as well – specifically, the duties tests.

The proposed rules don’t make changes to the duties tests for overtime exemptions, but they do ask for feedback on the current tests’ effectiveness. A few specific questions the Department of Labor wants answers to:

  • Should employees spend a specific minimum amount of time performing the primary duty to qualify for the exemption?
  • Should the U.S. adopt California’s new 50% threshold for employee time on a primary duty?

Your best first move

While the rules are still just in the proposed phase, they’re expected to be effective by next year. Which means there’s no time to lose.

You can start by having Payroll run a report of how many of your employees make $50,439 or less annually. That’ll give you an idea of what percentage of your employees will now be eligible to earn time and a half.

You might even work with Payroll to do some scenario planning to give you an idea of your company’s OT bill, depending on factors such as:

  • By department
  • In a given week, and
  • At crunch times.

After all, each of those factors will impact the budgets you and your company managers put together for next year.

Could still be reversed

There is a chance this new threshold might not hit your corporate pocketbook.

Since the new overtime threshold was pushed through without Congress’ approval, backlash is already being braced for.

Some experts think there could be everything from court challenges like we have with the Affordable Care Act, to a rider attached to other Republican legislation to cancel the rules.

We’ll keep you posted.

Info: For the proposed rule, click dol.gov/whd/overtime/NPRM2015/OT-NPRM.pdf

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