Overtime Pay For Salaried Employees
The debate on the overtime law for salary employees has been a topic of discussion over the last few years. Salary employees feel that they should be compensated for the hours worked over a standard forty-hour work week. Companies that are against the new overtime law feel that industries and organizations would face drastic increases in labor costs. They feel that by increasing the threshold, many workers will lose salaried employment status and the benefits they depend on.
In 2014 President Obama instructed for the update to the overtime regulations and to simplify and modernize the rules in order to make them easier for workers and businesses to understand and apply. These new regulations will raise the salary eligibility threshold from $455 per week to $913 per week. The threshold will be automatically updated every three years based on the wage growth (Wage, n.d.). The new overtime rule is expected to ascend overtime pay protections to over four million workers within the first year of implementation (Wage, n.d.). Most human resource management departments are tasked with keeping track of new legislation around laws that impact the organization they are employed with (Dias sec. 2.1, 2011).
The impact of the New Overtime Rule that the Department of Labor has issued will reach 4.2 million workers. These workers will either gain new overtime protections or get a raise to the new salary threshold. Data shows that more than half of the workers to be impacted are women, which could result in 2.4 million women gaining either overtime protections or getting the raise that will get their pay over the new threshold. Also, more than half of the affected workers have at least a four-year college degree, and more than 3 in 5 are age 35 or older. Another stat is that 1.5 million of the impacted workers are parents of children under 18, which means 2.5 million children seeing at least one parent’s wages increase in one form or another (Shierholz, 2016).
The pervious threshold for overtime was by far out of date. The last time the overtime threshold was changed was in 1975 were $23,660 covered 61 percent of salaried employees. Since then inflation has risen, $23,660 is now below the poverty line for a family of four. An employee earning $24,000 a year working 64 hours a week earns less than minimum wage under the overtime rule that has been recently changed. Another change is to productivity, between 1979 and 2013, productivity has increased 64 percent while average wages have grown by 6 percent. A reason for this is the growing number of employees working more hours and not being compensated (Ross-Brown, 2015).
Based on the new overtime rule employers have three compliance options. They can either raise the salaries of non-exempt employees so they maintain their exempt status, they can also reclassify hourly employees as salary employees or they could reclassify salary employees as hourly adjusting their base pay to account for overtime. If employers set up their pay structure right employees will earn the same amount they did before the overtime rule came into effect (Straz, 2016).
When considering changing a salaried exempt employee to a non-exempt hourly employee there are a few things the employer should consider. The company needs to make sure the process is well documented in order to stay compliant with the Fair Labor Standards Act (FLSA). It could look as if the employer is trying to avoid complying with different aspects of FLSA. “The non-discrimination rules and regulations set forth by the Affordable Care Act make it difficult for employers to switch worker’s eligibility for health benefits between exempt and non-exempt status (Straz, 2016).” Employee’s benefits like paid time off, vacation accrual, and sometimes life insurance and disability may change with the classification between hourly and salary work status (Straz, 2016). All of these different benefits fall into the category of the compensation package. The company wants to be able to keep the package competitive enough to motivate their employees to stay through the change, but still have to be able to maintain profitability (Dias sec. 6.1, 2011). Another issue to think about is that salaried employees may enjoy the flexibility of their working schedule. Recent data shows that “regular work-at-home work has grown by 103 percent since 2005 (Straz, 2016).” Where salary employee may stay after work in order to finish up a task, hourly employees cannot if the employer does not want to pay for the overtime. Also, some employees could view the change from salary to hourly as a demotion. Some people look at the title of being a salaried employee as having a higher pristine than as an hourly employee title.
Locations similar to California have to comply with both federal and state law. The law in California requires overtime pay for those who earn less than $41,600 a year and allows them to claim overtime after working more than eight hours a day. The current administration pushed for this change because the current threshold was “eroded by inflation every year” and because too many Americans “have been left working long hours for no additional pay.” Retail and food services are projected to be the two big industries that will be affected by the new overtime rule. Businesses are going to see an increase in cost to cover the new rule, but when you put more money in the worker’s pocket you increase the purchasing power of everybody (Peltz, 2016).
Some nonprofit organizations are opposing the new Overtime Rule. Many of these workers work at justice-oriented, progressive nonprofits which depend on the work of canvassers, organizers, and campaigners who are told that the good work they do should more than make up for the low pay they receive. These organizations exploit the drive and good faith of their staff to stretch their budgets past a reasonably level. Sometimes the organizations oppose the staff’s attempts to unionize or try to improve working conditions, despite professed commitments to economic justice and workers’ rights (Miller, 2016). The workers seeking out to unionize may feel that promotions are given to the individuals who can spend all their free time at the job as well (Dias sec. 12.1, 2016). They have no family and no obligations that pull them away from their work. Even though they may have been with the employer longer they may not have the same performance numbers because they are not there around the clock like the employees without outside obligations. Some of these nonprofit businesses have called the new rule “unrealistic” and promise to “pursue all available options to prevent this rule from diminishing our ability to advocate for the public interest (Miller, 2016).”
The Final Rule that went into effect on December 1st, 20016, primarily focuses on updating the salary and compensation levels needed for Executive, Administrative, and Professional workers to be exempt. The Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the new standard salary level (U.S., n.d.).
References
Dias, L. (2011). Human resource management. Saylor.org/books. ISBN 13: 978-1-4533194-37. Downloaded Jan. 9, 2014 from
https://open.umn.edu/opentextbooks/BookDetail.aspx?bookId=71
Miller, E. (2016, May 23). Progressive Nonprofits That Oppose the New Overtime Rules for Low-Income Workers Are Hypocrites. Retrieved November 09, 2016, from http://inthesettimes.com/working/entry/19144/overtime-rules-department-labor-low-income-workers-prig-hypocrisy
Peltz, J. F. (2016, June 02). Analyzing the new rule for salaried workers’ overtime pay. Retrieved November 09, 2016, from https://www.latimes.com/la-fi-qa-overtime-20160601-snap-story.html
Ross-Brown, S., & Teuscher, A. (2015, September 03). Why the DOL’s New Overtime Rule is Such a Big Deal. Retrieved November 13, 2016, from http://prospect.org/article/why-dols-new-overtime-rule-such-big-deal
Shierholz, H. (2016, May 05). Who Benefits from the New Overtime Rule. Retrieved November 09, 2016, from https://blog.dol.gov/2016/05/18/who-benefits-from-the-new-overtime-rule/
Straz, M. (2016, June 06). Here’s What Happens When Salaried Employees Become Hourly. Retrieved November 09, 2016, from https://www.entrepreneur.com/article/276811
The Overtime Rule. (2016). Retrieved November 07, 2016, from http://www.dol.gov/featured/overtime/
Wage and Hour Divison (WHD). (n.d.). Retrieved November 09, 2016, from https://www.dol.gov/whd/overtime/final2016/
In 2014 President Obama instructed for the update to the overtime regulations and to simplify and modernize the rules in order to make them easier for workers and businesses to understand and apply. These new regulations will raise the salary eligibility threshold from $455 per week to $913 per week. The threshold will be automatically updated every three years based on the wage growth (Wage, n.d.). The new overtime rule is expected to ascend overtime pay protections to over four million workers within the first year of implementation (Wage, n.d.). Most human resource management departments are tasked with keeping track of new legislation around laws that impact the organization they are employed with (Dias sec. 2.1, 2011).
The impact of the New Overtime Rule that the Department of Labor has issued will reach 4.2 million workers. These workers will either gain new overtime protections or get a raise to the new salary threshold. Data shows that more than half of the workers to be impacted are women, which could result in 2.4 million women gaining either overtime protections or getting the raise that will get their pay over the new threshold. Also, more than half of the affected workers have at least a four-year college degree, and more than 3 in 5 are age 35 or older. Another stat is that 1.5 million of the impacted workers are parents of children under 18, which means 2.5 million children seeing at least one parent’s wages increase in one form or another (Shierholz, 2016).
The pervious threshold for overtime was by far out of date. The last time the overtime threshold was changed was in 1975 were $23,660 covered 61 percent of salaried employees. Since then inflation has risen, $23,660 is now below the poverty line for a family of four. An employee earning $24,000 a year working 64 hours a week earns less than minimum wage under the overtime rule that has been recently changed. Another change is to productivity, between 1979 and 2013, productivity has increased 64 percent while average wages have grown by 6 percent. A reason for this is the growing number of employees working more hours and not being compensated (Ross-Brown, 2015).
Based on the new overtime rule employers have three compliance options. They can either raise the salaries of non-exempt employees so they maintain their exempt status, they can also reclassify hourly employees as salary employees or they could reclassify salary employees as hourly adjusting their base pay to account for overtime. If employers set up their pay structure right employees will earn the same amount they did before the overtime rule came into effect (Straz, 2016).
When considering changing a salaried exempt employee to a non-exempt hourly employee there are a few things the employer should consider. The company needs to make sure the process is well documented in order to stay compliant with the Fair Labor Standards Act (FLSA). It could look as if the employer is trying to avoid complying with different aspects of FLSA. “The non-discrimination rules and regulations set forth by the Affordable Care Act make it difficult for employers to switch worker’s eligibility for health benefits between exempt and non-exempt status (Straz, 2016).” Employee’s benefits like paid time off, vacation accrual, and sometimes life insurance and disability may change with the classification between hourly and salary work status (Straz, 2016). All of these different benefits fall into the category of the compensation package. The company wants to be able to keep the package competitive enough to motivate their employees to stay through the change, but still have to be able to maintain profitability (Dias sec. 6.1, 2011). Another issue to think about is that salaried employees may enjoy the flexibility of their working schedule. Recent data shows that “regular work-at-home work has grown by 103 percent since 2005 (Straz, 2016).” Where salary employee may stay after work in order to finish up a task, hourly employees cannot if the employer does not want to pay for the overtime. Also, some employees could view the change from salary to hourly as a demotion. Some people look at the title of being a salaried employee as having a higher pristine than as an hourly employee title.
Locations similar to California have to comply with both federal and state law. The law in California requires overtime pay for those who earn less than $41,600 a year and allows them to claim overtime after working more than eight hours a day. The current administration pushed for this change because the current threshold was “eroded by inflation every year” and because too many Americans “have been left working long hours for no additional pay.” Retail and food services are projected to be the two big industries that will be affected by the new overtime rule. Businesses are going to see an increase in cost to cover the new rule, but when you put more money in the worker’s pocket you increase the purchasing power of everybody (Peltz, 2016).
Some nonprofit organizations are opposing the new Overtime Rule. Many of these workers work at justice-oriented, progressive nonprofits which depend on the work of canvassers, organizers, and campaigners who are told that the good work they do should more than make up for the low pay they receive. These organizations exploit the drive and good faith of their staff to stretch their budgets past a reasonably level. Sometimes the organizations oppose the staff’s attempts to unionize or try to improve working conditions, despite professed commitments to economic justice and workers’ rights (Miller, 2016). The workers seeking out to unionize may feel that promotions are given to the individuals who can spend all their free time at the job as well (Dias sec. 12.1, 2016). They have no family and no obligations that pull them away from their work. Even though they may have been with the employer longer they may not have the same performance numbers because they are not there around the clock like the employees without outside obligations. Some of these nonprofit businesses have called the new rule “unrealistic” and promise to “pursue all available options to prevent this rule from diminishing our ability to advocate for the public interest (Miller, 2016).”
The Final Rule that went into effect on December 1st, 20016, primarily focuses on updating the salary and compensation levels needed for Executive, Administrative, and Professional workers to be exempt. The Final Rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10 percent of the new standard salary level (U.S., n.d.).
References
Dias, L. (2011). Human resource management. Saylor.org/books. ISBN 13: 978-1-4533194-37. Downloaded Jan. 9, 2014 from
https://open.umn.edu/opentextbooks/BookDetail.aspx?bookId=71
Miller, E. (2016, May 23). Progressive Nonprofits That Oppose the New Overtime Rules for Low-Income Workers Are Hypocrites. Retrieved November 09, 2016, from http://inthesettimes.com/working/entry/19144/overtime-rules-department-labor-low-income-workers-prig-hypocrisy
Peltz, J. F. (2016, June 02). Analyzing the new rule for salaried workers’ overtime pay. Retrieved November 09, 2016, from https://www.latimes.com/la-fi-qa-overtime-20160601-snap-story.html
Ross-Brown, S., & Teuscher, A. (2015, September 03). Why the DOL’s New Overtime Rule is Such a Big Deal. Retrieved November 13, 2016, from http://prospect.org/article/why-dols-new-overtime-rule-such-big-deal
Shierholz, H. (2016, May 05). Who Benefits from the New Overtime Rule. Retrieved November 09, 2016, from https://blog.dol.gov/2016/05/18/who-benefits-from-the-new-overtime-rule/
Straz, M. (2016, June 06). Here’s What Happens When Salaried Employees Become Hourly. Retrieved November 09, 2016, from https://www.entrepreneur.com/article/276811
The Overtime Rule. (2016). Retrieved November 07, 2016, from http://www.dol.gov/featured/overtime/
Wage and Hour Divison (WHD). (n.d.). Retrieved November 09, 2016, from https://www.dol.gov/whd/overtime/final2016/