What You Need to Know About the New Overtime Wage and Hour Rules

New Overtime Wage and Hour RulesThe Department of Labor (DOL) has made an important announcement on new overtime wage and hour rules

The long-awaited Department of Labor ruling bringing on new overtime wage and hour rules was just made public, according to The National Law Review. This will mean that certain positions within a company may now be subject to overtime pay, which could significantly increase wages, effective Dec. 1 of this year.

While the salary thresholds are slightly less than the originally proposed amount, the new figure is set to double the current minimum wages for overtime pay.

Now more than ever, companies need to examine their operations to assess wage increases and the potential impact of reclassification of certain positions to non-exempt status. Furthermore, companies need to consider how these rule changes will affect exempt employees within their organizational structure.

The potential impact

With a significantly higher wage threshold as part of the new rules, many companies may prefer to switch their wage structure from salaries to hourly workers. This will enable them to accurately track work hours more carefully. The rules will also prompt companies to keep a closer eye on work hours for non-exempt employees as they approach 40 hours per week.

Perhaps the biggest impact will be on productivity. Companies may bring in part-time workers to account for the productivity gap created by non-exempt employees. This is particularly true for smaller businesses that cannot afford overtime. The rules may also force some companies to reduce wages due to the increased overtime pay, which will be the equivalent of time and a half.

The new rules

The salary threshold works as such: workers are entitled to overtime pay that is equal to the 40th percentile of weekly earnings generated by full-time employees in the lowest wage bracket in the country. That will increase the salary threshold for full-time employees who make $23,666 per year to $47,476. Per week, that works out to a bump from $455 to $913. Finally, the new rule will also raise the salary threshold on the “highly salaried employee” exemption to $134,004 per year. These salary thresholds will then be subject to revisions every three years, which may very well mean increases.

What companies should do

Upon implementation of the rule, there will be a grace period. Currently, that grace period will be 60 days from its publication in the Federal Register, which was set for May 23. It is assumed that the government may extend the grace period to as much as 120 days after publication, but that is yet to be determined.

Regardless, this is still a very short amount of time to adjust to such a major change. So companies should examine how their previously exempt positions will be affected. They may also elect to increase wage levels, convert exempt positions to non-exempt and vice versa or restructure their entire organization to reflect the changes. The new salary requirements may prompt many companies to avoid overtime pay altogether within their payroll systems. These companies will also need to file written notice as part of state law if they commit to any of the changes listed above.

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Frank Brunetti has been practicing law for over thirty years in the areas of estate and wealth preservation, tax planning for business entities and complex tax matters. He is admitted to the New Jersey and New York Bars as well as the United States Tax Court. Mr. Brunetti provides representation in federal and state tax matters, IRS controversies, estate and business planning and guidance for the preparation of wills and trusts as well as the administration of estates. For more information, please visit Frank Brunetti's full biography at Scarinci Hollenbeck

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