Four Things to Know About the Upcoming New Overtime Rules

Unfortunately the new overtime rules are likely back according to the Biden Administration. Companies may recall that these changes have surfaced and re-surfaced a few times dating back to 2016. Now is a good time for companies to take a proactive approach to preparation and get out ahead of this change. Here are the four things that you need to know about the anticipated legal changes.

1.Know the Current Law. Under the current law, the default rule is to pay employees an hourly rate for the first 40 hours each week and 1.5x that rate when they exceed 40 hours, i.e. “overtime”. However, employees can be “exempt” from the default rule of paying by the hour if: (1) their job duties meet the statutory requirements for executive, administrative, professional, outside sales or computer employees; and (2) they are paid at least $35,568 per year ($684 per week).?

2. Know How the New Rule Ups the Ante. While the current threshold to be “exempt” is $684/week, the anticipated new rules will raise the threshold substantially. Rumors range from $800/week to $1,000/week. This means that if an employee makes less than threshold, then that employee is now eligible for overtime and must be paid overtime if they work more than 40 hours in a week. This new rule is anticipated to make over 1 million employees eligible for overtime and will affect how a vast majority of companies pay their employees.

3. This is Not the End. In 2016, the proposed rules included be automatic increases to the minimum threshold. While the anticipated upcoming changes may not have automatic increases, it does allow for the DOL to review the threshold on a regular basis and consider increases. So it is important not to see this current proposed increase as a finish line, but rather another stepping stone.

4. You Need to Have a Plan. First, employers should identify the employees affected by the potential new rule change. From there, employers are well-served for form a task force and address a series of questions including:

• Does the company want to reclassify the affected employees as “hourly” employees?
• Alternatively, does the company want to give the affected employees a pay increase so that they hit the minimum salary threshold?
• If so, will all other employees also expect and be given raises on par with their colleagues?
• As another option, does the company want to decrease the affected employees’ number of hours or lower base pay to account for the new overtime premiums to be paid going forward??
• Should the company strictly limit their employees to 40 hours a week?

There are also practical issues that the company must deal with when implementing changes to comply with the new regulations, such as the perception of being “demoted” if reclassified as an hourly employee or, a decrease in employee morale due to a lack of flexibility in working hours. In addition to the economic issues, you must also determine how to track, monitor, and control hours worked by your employees (who were previously exempt, but not are hourly and eligible for overtime).

These are just a few of the questions that you should be asking yourself as companies prepare for these new rules. Companies should consider creating cross-functional teams with members from Legal, Operations, HR, Managers, Payroll, IT, and Finance to collect information and assess the impact of these regulations on the company’s budget and bottom line. From there, it will be important to implement the strategy best-suited to meet your company’s needs and then educate your workforce on the changes. Swift implementation now will avoid substantial fines and costly lawsuits in the future.