The Obama administration’s overtime law, updating the federal wage and overtime standards, has been signed and will go into effect December 1, 2016. Is your organization ready?
The new Department Of Labor Overtime Law changes overtime pay eligibility so employees earning less than $47,476 a year will automatically need to be paid overtime if they work more than 40 hours a week. Overtime pay remains time and a half and it is expected 4.2 million employees across the country will be affected by the new rules.
Changes to Current Rules
Before the Obama administration’s overtime law, only employees earning less than $23,660 were automatically granted overtime. The reasoning behind overtime rules was to ensure that lower paid workers were compensated fairly for additional work. Higher earners were considered exempt from automatic overtime because in many cases they were earning enough money for their needs. In addition, executives and other high earners may have been granted commissions and other bonuses to ensure fair pay—even when working over 40 hours a week.
However, the overtime law had not been updated since 2004 and the $23,660 threshold was considered by some legislators to be too low. Therefore, the new overtime rules update is meant to protect low-income and middle-class workers.
What Companies Need to Do
Now that the rules will change, companies will need to adjust. The need to ensure you are keeping track of employee hours so you will be able to stay compliant and pay overtime when needed will increase. Depending on the company's budget, you may also want to increase employee salaries to make some workers exempt from the new law or you may need to take steps to ensure no employee works more than 40 hours a week to avoid overtime costs. This could mean scaling back hours for full-time employees and spreading them out among part-time workers, among other options.
Many companies will also now have to require employees to clock in and clock out when they start and end their workday. Regardless of which avenue your company takes to comply with the new law, having a reliable employee time tracking system in place will be crucial.
Although the cut off for overtime is $47,476, even employees earning above this level may be qualified to earn overtime pay. Eligible employees who can pass a minimal duties test are exempt from the cut off. For instance, if you earn between $47,476 and $134,004 and take care of administrative, executive or professional duties such as managing, hiring and other tasks, you may be exempt from overtime pay. If you don't have these duties, you may still qualify for overtime pay.
Under the new rules, incentives, bonuses and commissions can be used for up to 10% of the $47,476 salary level. In addition, the cut off rate for overtime will be updated every three years based on inflation levels. The Department of Labor projects that the overtime threshold could potentially increase to over $51,000 by 2020.
Managing overtime pay increase and overtime budget considerations will be a big part of business starting this December. With the law in effect, proper employee time tracking becomes an even more critical function for your organization. If you run your own business, you want to ensure you take the steps needed to correctly manage your payroll and employees.
Orbital Shift can help by offering you a powerful way to manage employees in real time with enhanced simplicity and powerful features. Check out Orbital Shift’s workforce management software today to find out how you can stay compliant with the new rules while managing your business effectively.