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HR May Need to Work Overtime for New Overtime Rule

The United States Department of Labor is proposing to update its regulations governing which executive, administrative, and professional employees (white collar workers) are entitled to the Fair Labor Standards Act’s minimum wage and overtime pay protections. These regulations were last updated in 2004 and new rules may be published as early as April 2016, though no effective date is known yet.

A key provision in the proposed regs is to raise the salary level for the “white collar” exemption from the current minimum of $455 per week, or $23,660 a year, to $970 per week, or $50,440 a year. In other words, it could mean that employees paid below the $50,440 threshold could be entitled to overtime pay on any work over 40 hours per week. The Department of Labor estimates that 5 million currently exempt workers would become eligible for overtime pay unless their salary is raised.

The D.O.L. wishes to set the standard salary level at the 40th percentile of weekly earnings for full-time salaried workers and to have a mechanism to automatically update the wage amounts to this standard going forward.

Business will want to check their individual State verses Federal Regulations as each state may enact regulations that differ from federal regulations. However businesses will be bound by whichever set of regulations is more generous to employees. To deal with this, businesses may want to consider changes to salaries at an amount determined to be the most cost effective when taking overtime into consideration. The new rules should also be taken into consideration when looking at the cost-effectiveness of additional hiring vs utilization of employee overtime.

By Dale F. Jensen, CPA