Are You Ready for the New Overtime Rules?

In May 2016, the U.S. Department of Labor released new overtime rules that increase the threshold for workers to earn overtime pay, or time and a half, for time worked beyond 40 hours in a work week. The rule may increase HR costs and change the compensation for 5 million workers. Here's what HR staffers can do about these changes.

Statistics

The overtime rules increase the wage threshold for employees that deserve overtime pay. Under the old rules, employees that made a minimum of $23,660 per year, or $455 per week, received a higher hourly wage for working more than 40 hours per week. The new rules double that threshold to $47,000 annually. This means anyone who makes less than $47,000 is eligible for overtime pay.

This could have several lasting effects on employers. The New York Times says companies can reduce the number of hours employees work, and HR can hire more entry-level employees as a way to increase the hours worked without raising salaries. Employers have a certain amount of time to comply with the new overtime rules, so HR can still develop some strategies to lessen the blow of any financial issues.

Classify Employees

HR managers can audit the company to find out who falls below the new $47,000 threshold. Once the business knows who gets more money for working overtime, it becomes easier to find ways to soften the impact of any added HR costs.

Check With States

States may have more generous hourly wage and salary regulations than the federal government. HR professionals must check with state labor departments to see how employers can comply with the new overtime rules.

Audit Employee Hours

The updated requirements mean companies must track employee hours to the minute. Some employers may want to convert some salaried employees to hourly positions to better control costs. Automated systems can alert HR when employees work more than 40 hours per week so the business knows how much is owed. Ultimately, a comprehensive audit can determine how HR saves money by offering competitive wages and lower benefits rates and making better use of the department's budget.

Seasonal Fluctuations

Companies can monitor seasonal fluctuations of hours to help determine staffing levels. Many employers need more help during the winter holidays, while businesses that hire a lot of people to work outdoors could add hours during summer months. Instead of raising salaries to go above the $47,000 threshold, businesses might consider hiring part-time or temporary employees to compensate for new overtime rules.

Change Salaries

HR departments might consider changing the salaries of employees who work overtime. Employers can raise a person's salary to go above $47,000 per year or simply pay overtime. It depends which way is more cost effective. An employee who works eight hours of overtime per week makes an additional $10,000 per year. In this case, a worker who makes $30,000 per year increases his annual salary to $40,000 per year. Paying someone $10,000 more is better than increasing this worker's pay by $17,000 to meet the minimum threshold.

HR departments should move now and take proactive steps to lessen the blow of any changes from the new overtime rules. No single solution works for every firm. Companies that act sooner remain more competitive later.

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