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Proposed Department of Labor Overtime Changes: What Are the Pros and Cons?

A change that’s been close to two years in the

making—raising

the Department of Labor (DOL)’s white collar overtime exemption

threshold—is likely to be enacted soon.


Update: On November 22, a U.S. District ruled in

favor of an injunction blocking the final overtime rules from being

implemented on December 1, 2016. At this time, we are awaiting more

information on updates to the rule and the final implementation date.

If you have implemented changes already, we recommend businesses not

change any plans, pay structures, or policies that have been

updated.


Here’s a quick refresher on what that change means:

* The Fair Labor Standards Act (FLSA) sets wage and overtime standards,

including qualifications that exempt higher-salaried, professional, and

managerial workers from overtime pay when they work more than 40 hours

in a week.

* The most notable and wide-reaching of these exemptions—the white

collar salary level exemption—is subject to change, which would raise

the minimum salary for exempt employees from $23,600 annually to $50,440

annually.

* The change is estimated to affect around 5 million American

workers.

At face value, raising the white collar exemption seems logical and

beneficial, but there are potential ramifications that worry

employers, especially small business owners. The DOL opened the proposed

change to public comments over the summer, which quickly showed how much

concern owners, executives, and payroll professionals have: the

Department received over 250,000 individual pieces of feedback on the

proposed rule.

Let’s take a look at some of the pros and cons of this new legislation.

Pros

An Old Rule Needs Updating

On one hand, increasing the exemption salary level is broadly beneficial

and even common sense. The initial white collar exemption level was set

in 1975 and hasn’t been changed since. Forty years’ worth of inflation

has put a $23,600 per year salary below the poverty line (the poverty

line for a family of four was $24,008 in 2015) in today’s society,

whereas it used to place someone in the upper 38 percent of workers in

1975.

Also falling under the “common sense” approach, one of the stipulations

of the DOL’s proposed increase is for the white-collar exemption salary

to be tethered to the poverty line, which will more easily facilitate

future increases or alterations.

Women and Minorities Could Benefit

More than just updating the overtime threshold for modern standards, the

DOL’s proposed rule means women and minorities in the workplace stand to

receive a lot of the benefit from this change.

The gender wage gap puts a lot of women in middle management firmly in

the zone that would be covered by the salary exemption increase. On

average in 2014, female managers earned $981 per week compared to the

$1,346 weekly salary earned by men.

The proposed rule also addresses the gap in median income experienced by

black and Hispanic Americans. In 2013, white Americans reported a median

income of $55,257 annually, significantly more than the $40,963

average for Hispanic and black Americans’ median of $34,598.

Could Promote Better Company Behavior

The proposed change could serve as detriment to some larger companies,

who may be cutting corners when it comes to paying employees for

overtime.

Cons

Could Be Rough for Small Businesses

For small businesses with fewer employees and locations, overtime can be

costly, especially when there may be just a few vital managers or

workers whose occasionally heavy workweeks are both expected and

necessary. This could either lead to tighter budgets for those

businesses or unexpected layoffs of valuable employees no longer

over the exemption threshold.

Rural Businesses May Suffer

Smaller companies based in rural areas have this issue uniquely

compounded, as salaries in the $30,000 to $49,000 range can represent

a comfortable income in small-town America. Having to pay overtime in

those areas of the country can potentially cripple a business’ ability

to operate and grow.

Increased Litigation and Disputes

Another fear applies to businesses of any size: an uptick in the

already-increasing

trend of lawsuits being filed over wages and hours. As these types

of litigation often involve recently released employees and their former

employers, more concerns abound for small to mid-sized businesses. Those

who may choose to cull their workforce in order to help the bottom line

and meet FLSA compliance regarding the new overtime rules could lose any

financial savings to court costs and representation.

As with just about any sort of economic edict of federal origin, there

are a lot of intricacies involved in raising the white collar overtime

exemption threshold. And, things may change again before the rule

becomes final sometime this year. Keep abreast with updates and news in

Paycor’s

Resource

Center and assess your company’s readiness for these changes with

our

7-Step

Guide to compliance.


This content is for educational purposes only and is not intended to

serve as legal advice.

Sources: U.S. Department of Labor, University of Wisconsin-Madison

Institute for Poverty Research, U.S. Bureau of Labor Statistics, Wall

Street Journal


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