New Overtime Rules: What You Need to Know

The following article originally appeared on Yahoo! Finance on May 19, 2016. To view the original article, please click here.

by Stephen Pounds

The Department of Labor issued new rules to boost the salary threshold to be eligible for overtime pay for most white-collar, salaried workers from $23,660 to $47,476 a year.

On a weekly basis, the overtime threshold moves from $455 to $913. The new rule becomes effective Dec. 1.

The rule will extend overtime protections to 4.2 million workers who work more than 40 hours per week, the Labor Department says.

Ryan opposes new rule

House Speaker Paul Ryan, R-Wisconsin, has pledged to fight the Obama administration on the rule. “Who is hurt most? Students, nonprofit employees and people starting a new career,” Ryan says in a statement. “President Obama is rushing through regulations — like the overtime rule — that will cause people to lose their livelihoods.”

To comply with the law, employers can:

• Pay time-and-a-half for overtime work.
• Raise workers’ pay above the new threshold.
• Limit employees’ hours to 40 per week.
• Or some combination of the above.

A moving target

The new overtime threshold is expected to raise Americans’ wages by an estimated $12 billion over the next 10 years. The salary threshold will be updated every 3 years. Based on projections, it is expected to rise to $51,000 by Jan. 1, 2020, when the first update takes place.

Rule keeps existing ‘duties test’

Salaried employees are exempt from the law if they pass a test demonstrating they primarily perform executive, administrative or professional duties. Some occupations — teachers, doctors and lawyers — are not covered by the rule, the Labor Department says.

To ease the impact on employers, the department says it is leaving the existing “duties test,” which determines eligibility for overtime, the same. It also allows bonuses and incentive pay to account for up to 10% of the new salary threshold.

The higher overtime threshold should have the effect of putting more money into workers’ pockets, improving work-life balance for employees, creating new opportunities for other workers as hours are limited, improving workers’ health and increasing productivity, the department says.

“Research indicates that working long hours is bad for many workers’ health and increases the risk of injury. Giving workers more downtime can help improve health and prevent injury,” the Labor Department says.

Some employees aren’t covered

The Obama administration says updating the overtime rule was badly needed. The number of full-time employees qualifying for overtime fell from 62% in 1975 to 7% today.

The new threshold does not apply to public sector employees who receive compensatory time, or comp time, instead of overtime pay. Teachers, coaches, graduate and undergraduate teaching assistants and college administrative employees also are not covered by the new rule, although researchers are.

The new threshold will have the most impact on blacks, Hispanics, millennial workers and workers without a college degree, the department says.

It also will give a boost to women, says Labor Department economist Heidi Shierholz. “Women are more likely to earn low salaries than their male counterparts, which means a higher share of them are affected by the rule,” she says.

Business groups line up against rule

Not everyone loves the higher overtime threshold.

“The DOL ignored the pleas of employers for all sectors — small businesses, nonprofit, public, education and others — to back off the rulemaking and conduct a legitimate economic analysis,” blogged Mark Freedman, executive director of labor law policy for the U.S. Chamber of Commerce.

“Waiting in the wings to pounce are the plaintiffs’ lawyers. These lawyers are salivating over the opportunities they see to go after employers,” Freedman says.

Decision time for employers

Labor lawyer Thomas Wassel says employers have time to decide how to comply with the new rule. “Employers will have to carefully audit their workforces to ensure that employees are classified properly,” he says.

Indeed, employers will have to avoid understaffing difficulties, unpredictable workweeks and “clopening,” or workers manning back-to-back shifts.

David Lewis, CEO of human resources consulting firm OperationsInc., CQ one word says the new rules will be disruptive to small businesses.

“The issuing of new rules is significant, but pales in comparison to the cost of fixing years of failing to pay those who should otherwise have been paid for OT,” he says.

The National Federation of Independent Business, a trade group representing small business, opposes the new threshold, saying it could push some salaried employees back into hourly jobs.

Small businesses will “have to make tough choices that might affect the very same workers whom the Department of Labor thinks it is helping,” says NFIB President and CEO Juanita Duggan.