Employment and Labor

Department of Labor Changes of Great Concern to Employers

Department of Labor Changes of Great Concern to Employers

On May 17, 2016, the United States Department of Labor announced that it was finalizing changes that will make significantly more salaried employees eligible for overtime pay.  Specifically, the new rules will double the salary threshold under which most salaried workers are guaranteed overtime pay.  The previous threshold of $23,660 was set in 2004.  Now, salaried employees making less than $47,476 will be entitled to overtime pay if they work more than 40 hours per week.  The Obama administration states that the new rule will increase workers’ pay by $12 billion over the next ten years.

The National Retail Federation previously called the proposed rules “misguided and extreme” and claimed that the rules would actually hurt employees who currently enjoy the benefits of a salaried position.  Regardless of the veracity of these claims, employers must take action now to ensure that they comply with the new regulations.  Failure to do so could result in litigation under the Fair Labor Standards Act, which carries a statutory right to attorney’s fees if the employee is successful.

For that reason, it is critically important that employers continue to closely monitor employees’ hours.  Employers should also document and keep records pertaining to employees’ hours. These records are critical to establishing employees’ entitlement (or lack thereof) to overtime pay.  

Employers also have options as to how to proceed with the new rules.  For example, employers have the option of hiring more part-time employees.  In theory, part-time employees may be able to fulfill some of the salaried employees’ job duties, thereby reducing the salaried employees’ overtime.  Obviously the employer must determine whether this is feasible and beneficial after giving consideration to the part-time employees’ hourly rate, the salaried employees’ salary, the job functions, etc.

Additionally, employers can adjust employees’ salaries to account for the new threshold for overtime pay.  In some instances, it may even be beneficial to increase employees’ pay if the difference between the employee’s current salary and the $47,476 threshold is not significant.  In such a case, the employer would not be required to pay the employee overtime pay and the employee would enjoy an increase in salary.  Each situation will need to be evaluated on a case by case basis.

Regardless of the decision, it’s important that employers begin evaluating these issues as soon as possible.  Changing salaries, making hiring decisions, and evaluating job duties can be a time consuming process.  Making these decisions in a well-planned, thoughtful manner, however, is ultimately in the best interest of both the employer and its employees.