What to know about proposed overtime changes

What to know about proposed overtime changes

0227obamaap-crop-600x3381Human resource professionals already have had several changes to absorb during a short holiday week, and yet another is in the works.

The U.S. Department of Labor has proposed raising the annual salary level at which overtime pay kicks in from $23,300 to $50,440. The proposal is subject to a 60-day review period before a final rule change can be issued.

If enacted, the overtime regulations would affect businesses in a number of ways, according to the Society for Human Resource Management:

Widespread application. More than 11 million employees in every industry will be affected. Most employers covered by the Fair Labor Standards Act would have to analyze and adjust employee classifications by an undetermined date in 2016.

Increased labor costs. The proposed rule sets the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers, which for 2013 was $47,892 annually. If this approach is adopted, the 2016 level is projected to be $50,440 annually. This is expected to have a disproportionate impact on non-profit and service businesses, as well as certain geographic regions.

Salaries will increase automatically. The department, for the first time ever, proposes to automatically update salary levels (including for highly paid employees) annually, based either on percentiles of earnings for full-time salaried workers or changes in the inflation rate.

Highly compensated employees are included. The changes would set this annual level at the 90th percentile of earnings for full-time salaried workers ($122,148 annually or based on changes in inflation. This would be an increase from the current $100,000.

Department is seeking input. The proposed regulation acknowledges challenges associated with the duties test and seeks additional examples regarding specific occupations. The department also wants to hear from employers about possibly including nondiscretionary bonuses to satisfy a portion of the standard salary requirement.

State laws affected. California and other states that already have more-restrictive laws will have to review their requirements in light of these changes.

Reduced flexibility. Reclassifying significant numbers of employees from exempt to non-exempt status will require tracking of hours worked and is expected to reduce flexibility.