There has always been a major distinction between salaried and hourly employment, each with its advantages and disadvantages as it pertains to access to overtime compensation.
The recent Overtime Regulations update issued by the United States Department of Labor (DOL), narrows the gap between these two distinctions - salaried workers who are paid below $913 a week will be entitled to compensation for working overtime - a major jump from the $455 a week threshold that had been in place for decades. For workers, this seems like a win, however many business owners argue that the ruling places undue stress upon businesses that are already faced with hardship in today’s difficult economic climate.
On May 18th of this year, President Barack Obama announced the DOL's newly updated Overtime Eligibility Regulations, which alter the Fair Labor Standards Act, and raise the minimum salary to have access to overtime pay for executive, administrative and professional employees (both blue and white collar) to $913 a week (up from $455 a week). This change will enable an additional four million full-time, salaried workers to receive overtime compensation when they have worked additional hours on top of their standard work week.
The change goes into effect on December 1st, 2016, and the DOL has also called for an indexing of the Salaried Worker Threshold to account for potential cost of living increases every three years.
Unsurprisingly, the ruling has sent ripples throughout the business world on both sides of the equation. To truly comprehend the scope of the changes in store for both employers and employees come December 1st, we spoke to two experts in the field for their thoughts on these new Overtime Eligibility Regulations, and what these changes mean for the millions of salaried workers who stand to be affected by the changes come December.
Louis Basso is President and CEO of Alcott HR, a professional employer organization (PEO) he co-founded in 1987. Alcott HR is a one-stop shop for all of a business’ human resources (HR) related needs, and has been recognized by Crain’s New York Business List of Top 150 Private Companies on numerous occassions.
Basso is very active in the PEO industry, and works with organizations representing small businesses - he is the Leadership Council Chair of the New York State Leadership Council of the National Association of Professional Employer Organizations (NAPEO).
According to Basso, previous regulations in place governing overtime eligibility status for businesses were already fair; in addition, he said, many employers were already going above and beyond to be fair to their salaried workers, making these new regulations not only unnecessary, but redundant.
“The vast majority of businesses were doing the right thing; paying for overtime for their nonexempt employees, and compensating their exempt employees in different ways as part of their compensation packages,” he said.
“These businesses understand that their employees are their most valuable asset and to keep good people, you need to do the right thing. For those businesses that were not being fair to their employees, the previous regulations may not have been strong enough, but overall, I believe the vast majority of businesses are doing the right thing.”
Basso noted that this change in overtime eligibility status for salaried employees comes at an already hard time for employers, considering the fact that other measures aimed at increasing worker compensation and protection have recently passed as well.
“This new regulation, combined with the new minimum wage, the passage of a new disability law in New York State, and the financial increases incurred through the Affordable Care Act has made it very challenging for businesses,” he said.
“It is a triple whammy which represents cost impacts triple to four times the cost of living. I think there were other options available such as making sure people were properly classified as exempt or nonexempt. The rules were in place and just needed better enforcement.”
Not everyone thinks that this update is uncalled for - Dawn Davidson Drantch, who began her career at the United States DOL's Civil Rights Division in Washington DC, later joining a Long Island a human resources and employment law firm, thinks that the increase was overdue for employees living in areas with a high cost of living.
In 2005, she joined Alcott HR, where she advises on legislation, laws, rules and regulations, as well as employee relations issues, and is is a regular source for media regarding issues in the workplace. Drantch is active in NAPEO as a member of its Board of Directors, Legal Advisory Council, Health Care Task Force and State and Federal Government Affairs Committees.
Drantch feels that this change in overtime eligibility status for salaried employees is a good thing for those struggling to make ends meet, although she does not deny that it fails to take into varied living conditions nationwide or the hardships its impending implementation will mean for businesses.
“In this part of the county, where it is difficult to live on $23,000 a year, perhaps we were overdue to look at this rule, but there may have been a way to phase in the changes in order to make it easier for businesses to comply,” she said.
“However, the rule is not indexed for regions across the country, where different economic conditions and costs of living vary greatly. In other parts of the country, many managers make salaries that are under the new salary threshold of $47,456 for exempt employees. Businesses now have some important decisions to make about their staffing and budgets.”
Drantch outlined the specifics of the Overtime Eligibility Regulations, and said that they will force businesses to make some hard choices once December 1st rolls around; ultimately, she said, the new measures may have unintended negative consequences for employees.
“Previously, the federal regulations said that salaried employees making $455 a week or more were exempt from overtime pay. Now, the minimum salary is set at $913 a week, or $47,476 annually for executive, administrative and professional employees. That means anyone earning less now must be paid overtime. The new rule automatically entitles 35% of full-time salaried worker to overtime pay based on their salary,” she said.
“This will cause some employers to raise some employee salaries over the $47,456 minimum, which could cause other employees to question why they aren’t getting a raise, creating morale issues. On the other side, some employers may elect to pay formerly salaried employees on an hourly basis instead, requiring these workers to clock in and keep track of their time which they have not previously been required to do.”
Basso also feels that the new law does not take numerous factors into consideration, and could lead to issues affecting people’s jobs that were unintended by its passing.
“I think that the government could have taken more gradual measures and again, I believe the rules were in place and that the vast majority of businesses were doing the right thing. For the minority that wasn’t, expanded enforcement measures may have been less onerous than these changes applied unilaterally,” he said.
“While the new overtime rules may have been well intended, there may be unintended consequences in terms of people’s jobs, how much money they end up making. We will have to wait and see as businesses look at their particular situation and make the necessary changes to comply with the law and still keep their businesses operating efficiently and profitably.”
For those businesses that do not adhere to the new regulations, or are simply unaware of their passing, Drantch notes that the Department of Labor will be keeping an eye out to ensure compliance from employers.
“The Department of Labor has different enforcement initiatives. It tends to target different industries each year. Typically, the DOL looks at industries where there are a lot of lower paid, lower skilled, blue collar workers,” she said.
“The new rule applies to all workers – blue collar and white collar. Unfortunately, a large number of business owners do not stay abreast of changing regulations or they simply don’t know, and regulations like this one, which the DOL has been speaking about for a while now, can be very difficult for them.”
Regardless of the challenges – both to employers who are fighting to keep afloat, and employees who are trying to pay their bills – there is a light at the end of the tunnel, according to Basso. It’s going to take additional work and perseverance in order for the economy to turn the corner; when it does, he said, things will be better for us all.
“It’s not 2007, but we are getting there. It is definitely getting better for businesses,” he said.
“Unemployment is going down, small business are starting to add more people. While it’s not the firmest footing for business, we can be cautiously optimistic.”