What the New Final Overtime Rule Means for Your Business
This September, the U.S.Department of Labor released a substantial update on the final overtime rule, with an aim to provide more employees with overtime protection. As a result, it is estimated that 1.3 million workers will become eligible for overtime premium pay of at least 1.5 times the regular rate of pay.
The 2019 Final Rule will take effect on January 1, 2020, giving businesses several months to examine their employee classification and modify their salary and compensation policies. Make sure you’re in the loop by learning more about the most important changes and how to adjust policies in your business.
What’s changed with the final rule on overtime
According to the applicable overtime rule from 2004, workers who make more than $455 a week ($23,660 a year) are not eligible for overtime benefits. With the new final overtime rule, this threshold has been raised to $684 a week ($35,568 a year).
Moreover, the total annual compensation requirement for “highly compensated employees” has been raised from $100,000 per year to $107,432 per year. Employers are also allowed to use nondiscretionary bonuses and incentive payments to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices.
Although there was a consensus that the increases in the salary thresholds were long overdue due to wage and salary growth, the new final overtime rule has stirred up quite a debate. It is compared to the Final Rule from the Obama era which promised a much higher threshold—$913 a week. This rule would have impacted more than three million workers, but the business community at large heavily opposed it. The United States District Court for the Eastern District of Texas declared it invalid in 2017.
Despite its shortcomings, the new final overtime rule is still a step forward. It is a compromise that will benefit more than one million workers, without threatening companies by imposing dramatic changes of labor budgets.
What the new final overtime rule means for your business
The first step in complying with the new final rule on overtime is looking into the job descriptions that apply to every position in the business in order to see which employees could qualify for the exemption. The government has provided a duties test that will help your HR department define which employees are affected by the new rule.
After the initial analysis, most employers will be required to make a choice between offering pay raises to maintain employees’ exempt status, on one hand, and close monitoring of employees’ hours on the other. Let’s examine each of these options:
Raising salaries to enable exemption
If managers, administrators or executives in your business are on the verge of being exempt according to the new final rule, you might want to increase their wages in order to obtain that status. If you choose to do so, ensure that the duties of those employees are in line with the duties prescribed to executive, professional and administrative workers.
However, you need to tread carefully with this approach, as it comes with costs you might not be able to predict. Make an effort to acknowledge how the rest of the team will react to your move.
Employees not affected by the change in the compensation policy can perceive it as unjust. Also, raising salaries for the sake of compliance might make some managers feel that their arms are being twisted into offering a pay bump to employees higher up on the corporate ladder.
These indirect expenses can cost you more than you anticipated.
Paying overtime when necessary
With the new final overtime rule in place, some employees will become overtime-eligible, but it might be the case that their workload does not require them to stay after-hours. These employees might see an occasional spike in their work hours that takes them over the 40-hour threshold, but fortunately, not very regularly.
There’s always room to grow.
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In this case, it is recommended to keep their salaries on the same level and pay for overtime work when necessary. This policy is fair, predictable, and keeps your labor expenses in check.
How Humanity can help with managing overtime
Optimized staff schedules are only one of the ways Humanity can help your business curb unnecessary overtime. Learn more about how its powerful features can ensure compliance, while improving the bottom line.
Distributing hours more effectively
The most significant improvement your business can make is to streamline the employee scheduling process. Conflict-free shift schedules that account for employees’ availability is of utmost importance for avoiding overtime.
Since Humanity is integrated with numerous HCM solutions, schedule administrators can get a better overview of all employee data, as well as labor requirements and expenses. With this insight, they can create fair schedules, decreasing the chances of employees having to work a lot of overtime hours on a regular basis.
Keeping better records
Regardless of the recent changes in overtime regulation, the Fair Labor Standards Act (FLSA) still prescribes strict recordkeeping requirements for working hours and payroll. Since Humanity is cloud-based and available on any device, it’s simple to keep accurate records of employee attendance, regardless of your team size and number of business locations.
Moreover, Humanity’s customizable report templates can easily be exported for bookkeeping and archiving purposes. To ensure seamless payroll processing, Humanity has partnered with leading payroll providers.
Accurate time tracking
An antiquated, error-prone method like spreadsheets makes it next to impossible to accurately monitor and track employee attendance. With Humanity’s TimeClock, managers can ensure that they are paying accurate overtime wages.
Our TimeClock allows employees to clock in and out of shifts, while minimizing the risk of buddy punching. Companies can define terminals for clocking in, as well as enable manager approvals for timesheet data. Remote workers can clock in and out from anywhere with their preferred device, letting employers know their work location through GPS tracking.
Best of all, these robust features are built into the application, so your business doesn’t require an additional stand-alone, expensive platform for time tracking.
There’s still much to learn
Although many experts have already started dissecting the new rule and offering advice to U.S. business owners, there is still a lot of work to be done by individual businesses. While we hope our advice and resources were valuable to you, speaking to a legal professional about these regulatory changes, and how they will affect your organization, is definitely the smartest route to take.
The information contained on this page, as well as elsewhere on this website, is for educational and informational purposes only. It is not intended to be a substitute for legal or financial advice that can be provided by your own attorney, accountant, and/or financial advisor. Although care has been taken in preparing the information provided to you, we cannot be held responsible for any errors or omissions, and we accept no liability whatsoever for any loss or damage howsoever arising.