On Aug. 30, the U.S. Department of Labor announced a proposed overtime rule to increase the weekly salary threshold under the Federal Labor Standards Act (FLSA) from $684 to $1,059 — about $55,000 per year. The rule would “restore and extend” overtime protections to 3.6 million salaried workers.
Below are six provisions that, if finalized, would change the way employers nationwide pay and organize their workforces. The Department of Labor’s new proposed rule seeks to:
- increase the minimum salary exemption from $684 ($35,568 per year) to $1,059 per week (or $55,068 per year)
- increase the annual salary threshold for highly compensated employees from $107,432 to $143,988 per year
- “define and delimit” the criteria for exempt executive, administrative and professional employees
- apply the new standard salary level to all employers required to pay the federal minimum wage (excluding those in American Samoa)
- change the special base rate for film industry employees
- automatically update every three years based on the latest year of earnings data published by the U.S. Bureau of Labor Statistics
How does the proposed overtime rule impact employers?
Businesses don’t have to comply yet since this is a proposed rule. If passed, the Department of Labor estimates the law will cost employers $1.2 billion in its first year. This estimate includes:
- $534.9 million in managerial costs
- $427.2 million in regulatory familiarization costs
- $240.8 million in adjustment costs
The Department of Labor also predicts that $1.2 billion will be “transferred” from employers to employees in the first year due to overtime premium pay and salary increases used to maintain employees’ exempt status.
According to Judy Conti, the government affairs director at the National Employment Law Project, the rule would allow employees making less than $55,068 per year to:
- earn more when they work overtime
- avoid long, unnecessary hours
- focus on life, rather than work
Consequentially, businesses could issue pay cuts to account for new overtime levels. Voters voiced a similar concern in 2016 before the proposed rule to increase the exempt salary threshold was struck down by a Texas court.
How should employers prepare for the proposed overtime rule?
Employers should evaluate which employees earn an annual salary below the proposed levels:
- $55,068 for standard, white-collar employees
- $143,988 for highly compensated employees
It’s also important to understand how much overtime employees earning below these levels regularly work. Knowing that will help you estimate how much a potential increase could cost your business.
Once the rule is published in Federal Register, the public will have 60 days to submit comments. Once this period closes, the Department of Labor will review all feedback in preparation to release a final rule.
How does Paycom help companies prepare for the overtime rule?
The right HR tech is crucial for all workplace compliance, including the Department of Labor’s proposed overtime rule. In a single software, Paycom provides the tools you need to easily manage:
- time and attendance
- new and upcoming legislation
- payroll
- scheduling
- overtime
- and more
Explore Paycom to learn how it helps businesses like yours comply with confidence to avoid costly penalties.
DISCLAIMER: The information provided herein does not constitute the provision of legal advice, tax advice, accounting services or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional legal, tax, accounting or other professional advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation and for your particular state(s) of operation.