Business owners are scrambling to track and manage the hours their employees really work following last month’s White House proposal that would put more American workers in line for overtime pay. The rules won’t be finalized for months, but companies need to understand these rules, how to comply, and how to keep labor costs from spiraling out of control.
Under the proposal, salaried workers earning less than $50,440 -- more than double the previous amount -- would be eligible for a time-and-a-half pay when working more than 40 hours per week. According to Labor Department estimates, this would extend overtime protections to nearly 5 million white collar workers within the first year of implementation. Both Labor and the White House claim this is a critical first step in ensuring that working-class Americans are compensated fairly and have a chance to get ahead. Failure to update the overtime regulations, they both claim, has left an exception to overtime eligibility originally meant for highly-compensated executive, administrative, and professional employees. Lower wage earners, they claim, can work 50-60 hours each week without ever seeing overtime pay.
This announcement has left many business owners searching for ways to track employee hours more closely than ever before. Some firms are installing software that alerts managers when workers are at risk of running up overtime pay, while others are evaluating which employees should be salaried and which should be paid hourly. Many employers are now discouraging connection to the office (e.g., checking emails) after working hours. Regardless of what government penalties may be for violating these rules (expect that announcement soon), the labor costs involved in having to compensate so many more employees for overtime work are simply staggering. In 2013, U.S. employers paid workers about $6.7 trillion in wages. The Department of Labor estimates that, if the overtime rule is accepted in its current form, almost $1.5 billion will be transferred from employers to the pockets of their workers in the first year alone. Business owners obviously need to get a handle on this immediately.
Criticism from business owners, as you can imagine, is strong. As with all agency-issued recommendations, this one will be subject to public comments for 60 days (you can do so until Sept. 4 at www.dol.gov/whd/overtime/NPRM2015/), after which the Labor Department will review comments before issuing a final rule. If all goes as planned, these changes will likely go into effect in 2016. Whether Congress will push back on this unclear. Keep your eye on this and be prepared to implement new strategies for tracking your employees.