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Is Your Company Ready for DOL’s New Overtime Rule?

Is Your Company Ready for DOL’s New Overtime Rule?

For those of us doing business in America, we are frequently met with regulations from government agencies in Washington that can sometimes (many times?) do more harm than good.  While many such regulations are designed and implemented with the intent to provide better protections for individuals or more freedoms for workers, their practical implications for businesses often have much different (and much more negative) results.  One such regulation will go into effect on December 1:  the Department of Labor’s new rule governing “Overtime for White Collar Workers.”  While it may be well-intended, this rule could have harmful effects on businesses across the country.  So it’s critical to ask, before it’s too late:  is your company ready for the overtime rule?

Under the Fair Labor Standards Act (FLSA), most workers qualify for overtime pay for any hours they work beyond the traditional 40-hour work week. Certain “white collar workers,” however, are exempt from this rule and thus ineligible for overtime. It is to this so-called white collar exemption that the Department of Labor has aimed its most recent update. To qualify for a white collar exemption, an employee must generally meet three criteria: (1) he/she must be paid a predetermined or fixed salary; (2) his/her salary level must meet a certain threshold; and (3) his/her job duties must primarily involve those of certain executive, administrative, professional, outside sales, or computer employees. Under the current exemption, white collar employees earning less than $23,660 per year are eligible for overtime even if they satisfy the other criteria.  As of December 1, however, that income threshold will increase to $47,476, and white collar employees earning anything less per year must be paid overtime for additional work performed beyond their 40-hour week. When the rule goes into effect, it’s anticipated to extend overtime pay to approximately 4.2 million members of the workforce.  Additionally, the new rule includes a provision to automatically increase the salary threshold every three years, with the next increase expected to land somewhere around $51,000.

What does this mean for employers across the country?  The new rule presents many challenges, especially for small businesses, that must be addressed and prepared for prior to December 1.  The most obvious and immediate impact is that the new rule has the very real potential to raise the cost of doing business.  Those employees who were previously exempt from overtime pay must now be paid time and a half for every hour worked beyond 40 hours.  For many small businesses, that reality will put payroll costs at a level that is quite simply not sustainable.  To bear the costs of the new overtime rule or to avoid them altogether, many employers will be forced to eliminate certain positions or restrict employees’ hours, thus resulting in fewer jobs and less productivity. This is ironic, given that the rule has been sold as an attempt to help the very individuals who may now lose their positions because of it.  Employers must make their own decisions about how to confront the rule, but there is no doubt that business costs will go up and some individuals will lose their jobs due to this new regulation. Indeed, while the Department of Labor has touted the fact that the American workforce is expected to see an additional $1.2 billion per year in earnings, it has done so without considering whether employers will be willing – or able – to foot that hefty bill. Some analysts fear that both employers and employees alike will be on the losing end of the new rule.

These anticipated and far-reaching impacts of the overtime rule have garnered much attention in the last year and have even galvanized legal attempts to delay or stop the rule altogether.  The U.S. Chamber of Commerce, along with over 50 other business groups, recently filed suit in federal court in an effort to block or at least delay implementation of the rule. Some 21 states have also filed suit in federal court to challenge the new rule. Among several points, these lawsuits argue that the Department of Labor abused its authority in crafting the new rule and that the new rule itself violates federal law. Additionally, these lawsuits allege that that the automatic three-year increase violates the notice-and-comment approach to rulemaking. Interestingly, a variety of bills have been introduced in Congress in recent months, and with the election season now behind us, opponents of the new rule are hopeful that such bills will soon be acted upon.  Industry groups such as the National Lumber and Building Material Dealers Association (NLBMDA) are actively calling on members to contact their Senators and Representatives, urging them to support these pro-business pieces of legislation. While legal challenges and legislative efforts present some hope, however, there is no ability to forecast when decisions may be handed down (and how business-friendly they’ll be) or when such legislation may become the law of the land.

So it falls to us—businesses across America—to prepare and adapt to this new and onerous regulation.  With time quickly running out, it is imperative that organizations take whatever steps they deem most appropriate to comply with the overtime rule.  It is also advisable for companies not to simply rely on news reports to determine the most legally sound approach for their business, but rather, they should make it a point to consult with local legal counsel to ensure that they are in compliance by December 1.  Your organization should construct a plan that accounts for the rapidly approaching deadline and that also implements a long-term strategy to confront the automatic threshold increases beginning three years from now.  By doing so, you’ll be able to weather the ever-changing landscape of the Department of Labor’s approach to overtime pay in America. In turn, you’ll be able to succeed and continue doing business, despite federal regulations that make it more difficult to do so.

The foregoing article is not intended to constitute legal advice and is provided for information purposes only. Companies should consult an attorney for legal advice regarding compliance with the Department of Labor’s new overtime rule. 

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