The Clock Is Ticking: Have You Prepared for Department of Labor Overtime Changes?

On November 9-10, Paycor hosted its ninth annual HR Web Summit featuring sessions on a variety of topics ranging from the Department of Labor, Form I-9 and EEO-1 Report changes to common trends within the HR industry. The article below provides highlights from one of the most talked-about sessions of the Web Summit – DOL Overtime updates, as Paycor’s DOL expert, Tim Ruge, recaps what you need to know before new changes take effect.

Significant changes have been made to the way the Department of Labor allows companies to pay overtime for employees, and the deadline to start implementation is rapidly approaching. On December 1, 2016, any employee earning under $47,476 will be paid additional overtime wages for any additional hours worked above 40. For a policy that currently only affects those making under $23,660, this rapidly-approaching modification signals a seismic shift.

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.

This change in overtime calculation is going to impact businesses in a major way. An estimated 64% of businesses will have at least one employee affected by this implementation, and 76% of businesses say the impact to their bottom line will be moderate to significant. And the worst part is, many businesses are completely unprepared for the oncoming change. For a deadline little more than two weeks away, more than half of employers (53.1%) haven’t even informed workers of the change. To avoid being caught unaware yourself, let’s take a look at what this change means.

You have an employee. We’ll call her Jane. Jane currently makes $40,000 per year in salary, which breaks down to $769.23 per week in earnings. If Jane works an average of 50 hours/week, her pay rate will change dramatically under the new OT guidelines. These 10 additional hours worked would translate to an extra $288.83 per week, bringing her weekly pay to $1057.53. This brings her yearly salary to $54,991. Quite a change.

And penalties for not following the changes can be severe. The burden of proof is on the employer to present clear reporting and evidence to dispute claims made by employees of underpayment or overextending hours. Aside from heavy fines levied, employers would incur plaintiff fees and court costs as well. Depending on which state you’re in, employees can back as many as 5 years to make an overtime compensation claim (starting on December 1, 2016).

So what’s the best plan of action? The first word of advice is: DO NOT ESTIMATE. Track all affected employee hours as precisely as possible. Create reports that give you exact hours, pay rate, OT pay rate, etc. to give you every bit of trackable data, not only for current earnings but for any future disputes. And manage those OT hours wisely. They just became a significant expense. Other options for accommodating this new change include:

  • Reclassify employees from salary to hourly, adjusting the hourly rate to reflect overtime expectations. This seems to be the most cost-neutral option.

  • Raise all salaries to at least $47,476. For companies that can absorb the raise, this seems to be the easiest option to alleviate OT issues.

  • Prohibit ANY unauthorized overtime. This sounds like a quick fix, but loss of production per employee adds up quickly.

So if our employee, Jane, works 50 hours per week we would pay her $13.99 per hour if we converted away from salary. If we keep her salary at $40,000 and pay the new OT rate, she’d make an extra $14,991. If we prohibited any overtime, we’d lose around 520 hours of her productivity per year.

This complicated and costly change needs to be dealt with in serious fashion by someone that can be trusted to be an expert in the field. Learn how Paycor is staying one step ahead of these changes.

To listen to the full recording, click here.

This content is for educational purposes only and is not intended to serve as legal advice.

subscribe to Paycor's Resource Center

Subscribe to Our Resource Center Digest

Enter your email below to receive a weekly recap of the latest articles from Paycor's Resource Center.

Check your inbox for an email confirming your subscription. Enjoy!