The Impact of New Overtime Rules on Employers and Employees Alike
Dipali Garad
Email Developer | Email Marketing | Campaign Management | Campaign Planning
As businesses stare down the start of a new decade, there are several major regulatory changes that must be considered to help businesses continue to function at a high level when it comes to workforce management and compliance. Specifically, employers and employees alike will be immediately affected by the Department of Labor’s (DOL) new overtime rule.
On January 1, 2020, the DOL’s new overtime rule officially went into effect, increasing the earnings threshold required for employees to qualify for exempt status. This is the first time in 15 years the federal minimum salary threshold has increased. Under the Fair Labor Standards Act (FLSA), the new rule raises this threshold to $35,568 in annual earnings. Previously, since 2004 to be exact, employees were required to earn at least $23,660 a year in order to meet the salary level requirements to be considered exempt from the overtime requirements. Raising the salary level threshold means that more people will be eligible for overtime pay. In fact, the new rule will extend overtime pay to over 1.3 million U.S. workers who did not previously qualify.
This rule will have two main impacts on businesses: financial and cultural. Both large and small businesses will be affected, although larger organizations may have more resources to help manage and work through the changes. During implementation, employers should consider the following:
Financial Impacts: How to Approach Reclassification
Employers will need to face the tough decision of whether to reclassify employees from exempt to non-exempt, paying those individuals for any overtime worked, or to increase employees’ salaries to meet the revised threshold. Employers should look at those employees whose salaries fall in the gap between the old threshold of $23,660 and the new threshold of $35,568. How close or how far is the employee’s salary to/from the new threshold?
In order to make the most strategic decision, employers should consider reclassification in terms of the day-to-day duties performed by their employees and the number of hours worked by those employees, as well as the financial cost of increasing the employees’ salaries to meet the new threshold. By understanding an individual’s roles and responsibilities and how many hours the employee spends working, the employer can uncover which employee classification makes the most sense for each employee.
Another area of focus should be on business operations, such as providing mobile devices, laptops and cell phones, to employees. Access to a mobile device permits an employee the option to work remotely from the office and, potentially, after regular working hours. Employers should consider whether this is appropriate for their non-exempt workforce. Approaching reclassification with each of these factors in mind will help employers make the strongest and most effective decisions for their company.
Cultural Considerations: Increasing Employee Engagement
While the financial implications of the rule are relatively standard, this change can also generate cultural impacts for employers. Congruently, workplace culture plays an increasingly important role in recruitment, productivity, and employee satisfaction, making it more critical to consider.