October 25, 2016
By Mike Trabold
The Department of Labor released the highly anticipated final overtime rule in May, expanding overtime pay eligibility to approximately 4.2 million salaried workers across the country.
Despite recent news that a lawsuit has been filed by 21 states as well as a separate lawsuit filed by business groups led by the U.S. Chamber of Commerce both challenging the rule, businesses are urged to continue with preparation efforts for the Dec. 1, 2016 effective date.
Despite the fact that the updates are expected to have a significant impact on businesses, a recent Paychex Small Business Snapshot showed that nearly half of all business owners (49 percent) claimed they were unaware of the final overtime rule altogether. Additionally, of those who were aware, 67 percent said it will have little or no impact on their business, perhaps underscoring a lack of knowledge about the potential implications of the rule.
By being knowledgeable about the new regulations, accountants can advise their clients accordingly. Employers should be familiar with the rule and understand how it might affect their businesses and employees. Below are answers to some common questions to help business owners prepare.
Overtime Rule FAQs
1. Does the exempt rule affect small businesses?
Small businesses are not exempt from the new rule. However, the Fair Labor Standards Act and its provisions apply to employees of enterprises that have an annual gross volume of sales or business of $500,000 or more.
2. Is the threshold based on the salary alone, or does the cost of benefits contribute to the amount?
Benefits—with the potential exception of some percentage of bonuses—are not included in the salary thresholds of the current regulations or the new regulations.
3. How are businesses handling this transition?
Of the estimated 4.2 million salaried workers that will be entitled to overtime pay, the DOL estimates businesses will respond by either converting their employees to overtime-eligible status or raising their employees’ salaries above the new threshold. It is expected that the majority (4.1 million) will convert their employees to overtime-eligible status.
4.If the pay period is bi-monthly, how is overtime pay calculated when the start date or end date is in the middle of a regular work week?
Overtime must always be calculated based on the hours worked in the workweek, not the pay period. They cannot be averaged over more than one workweek.
Preparation is Critical
Business owners with employees who may be affected should take the initiative now to evaluate their company’s standing, examine how different scenarios will impact their bottom line, and determine how to move forward in order to avoid wage claims and other issues.
Once a client understands the new regulations and how they may impact their business, conducting an audit of which current employees are likely to be affected is recommended. This can be done in partnership with a payroll provider or compensation specialist.
A good next step is to examine historical overtime payments and determine whether costs are likely to increase due to hours worked. By looking at the impact of the new rules on the financial picture, clients will be in a better position to the take the actions most appropriate for their companies.
Don’t underestimate the power of technology. Back pay—as well as penalties and fines—can be very expensive, even when it's an unintended mistake. It's possible to enable workers to enter time via kiosks, mobile devices, and more.
With limited lead time to comply with the new overtime rules, business clients should start planning now. A strategic plan to make the necessary changes will help them avoid potential chaos in business operations.
Mike Trabold is director of compliance risk for Paychex, Inc., a leading provider of human capital management solutions for small- to medium-sized businesses.