In May, The Department of Labor (DOL) issued new overtime rules that will automatically extend overtime pay protections to more than four million workers within the first year of implementation, set to take effect beginning December 1, 2016. Among other things, the DOL doubled the salary threshold for the overtime exemption from $455 per week ($23,600 annually) to $913 per week ($47,476 annually). Therefore, if a worker makes less than $47,476, they are eligible for extra compensation if they work more than 40 hours a week. The threshold will increase every three years based on wage growth over time. Note the final rule does not make any changes to the duties test for executive, administrative and professional employees.
The changes, according to the DOL, can be attributed in part to the fact that a growing number of nonexempt employees are working more hours and yet are not being compensated for them. At the heart of the final rule is the DOL’s attempt to ensure workers receive “a fair day’s pay for a fair day’s work” in accordance with a memorandum signed by President Obama on March 13, 2014, which instructed the agency to look for ways to modernize and simplify Fair Labor Standards Act (FLSA) regulations while ensuring that the FLSA’s intended overtime protections are fully implemented.
Industries and businesses of all types, however, have voiced concern over the new rule. One fear among businesses is a potential uptick in the already-increasing trend of lawsuits being filed over wages and hours. As these types of employment practices litigation often involve recently terminated employees and their former employers, more concerns abound for small to mid-sized businesses. In addition, small businesses with a high number of hourly and seasonal employees, nonprofits, and retail, restaurant, and manufacturing industries will be most affected by the new rule. Overtime can be costly for small businesses with fewer employees and locations, 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.
Getting Prepared Now
What’s important is that all businesses, including manufacturing companies, review this new rule in order to avoid violating employment practices regulations. This involves checking federal versus state regulations, looking at your salaried employees to determine who would be eligible for overtime, monitoring employee work hours proactively with threshold reports and/or scheduling tools that can help manage overtime costs and ensuring that any work exceeding 40 hours per week is paid at the appropriate overtime rate.
Also be sure to communicate with your employees, as the workforce is probably already abuzz about this issue and they should be prepared for the potential impact of the new regulation on overtime pay. For example, let employees who could be impacted know there is a chance they may be reclassified to nonexempt. Train managers prior to the communications so they can be prepared to answer employees’ questions.
Be sure you review your specific situation with your accountant to ensure your operations are in alignment with key compliance issues under the new DOL ruling.
As regulations evolve and change, Precision Manufacturing Insurance Services (PMIS) will continue to keep the manufacturing industry up to date on the impact of these new laws. We are committed to supporting this vital sector of our economy with comprehensive manufacturing insurance and risk management solutions and services. For more information about PMIS and how we can assist you in protecting your employees, customers, property and assets, please contact us at 855.910.5788.