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

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!

More to Discover

Payroll Errors: 12 Common Mistakes You Might Be Making

Payroll Errors: 12 Common Mistakes You Might Be Making

Payroll Matters The payroll process is a necessary component of any business and The Department of Labor (DOL) keeps a close eye on businesses to help ensure they pay their employees correctly, and the Internal Revenue Service (IRS) and state taxing authorities are always going to make sure they receive the appropriate tax payments. 12 Common Errors to Avoid Everyone makes mistakes, and we’re hopeful they’re caught before anything bad happens. But it’s imperative to make sure that you’re not making any of these relatively common payroll mistakes if you manually calculate payroll in-house. Misclassifying employees and contractors In the gig economy, temps, freelancers, consultants and other independent contractors are commonly found in...

Dayrise Residential Outgrows Their PEO

Dayrise Residential Outgrows Their PEO

Dayrise Residential had a great problem. Founded in 2011, this multifamily housing and operations company now manages nearly 80 properties in eight states and employs, at any given time, close to 500 people. As the Dayrise business grew, they found that their HR and Payroll needs were outgrowing their PEO. Dayrise needed to streamline their recruiting process to keep pace with the demands of filling new positions. And once the recruiting problem was solved, they needed help onboarding and training employees. They also needed access to their data and analytics—and their rigid PEO partner just couldn’t make it happen. So Dayrise met with Paycor. What impressed them right away was that Paycor is not in the business of flashy demos and “...

HR

Lunch Break Laws By State

Lunch Break Laws By State

Lunch Breaks Aren’t a Requirement for Employers Most employers provide their employees with a paid or unpaid lunch break and some provide additional rest break periods. But did you know that breaks aren’t required by law? Federal law, anyway. The Fair Labor Standards Act (FLSA), the law that governs wages and hours, does not mandate that employers provide meal or rest breaks to employees. Like many other federal laws in the human resources space, some states have stepped in to bridge the gap. Here's What You Need to Know The federal law dictates that if an employee gets meal or rest breaks, the company does not have to pay them for that time unless: State law requires paid breaks The employee works through a break time (e.g., if they eat...

HR

Age Discrimination in the Workplace

Age Discrimination in the Workplace

Take a Quick Scan of Your Job Descriptions Do they ask for “a recent graduate,” a person “with 1-3 years of experience,” a “digital native” or worst of all, someone who would be a great fit for your “young and cool” team? Do you have an age requirement for certain jobs (excluding businesses that sell alcohol and require the person to be at least 21 years old, of course)? If so, your company could be headed to the courtroom to defend itself against an age discrimination lawsuit. Workers Ages 40+ Aren’t the Only Protected Class In 1967, President Lyndon Johnson passed the Age Discrimination in Employment Act (ADEA), which is designed to protect job candidates and employees 40 and up from age discrimination in the workplace. While it doesn’...