UPDATE: The Department of Labor’s Proposed Overtime Rules

Earlier this year, we told you about the new overtime rules proposed by the Department of Labor. Since then, there has been plenty of debate about whether the rules are fair to employers and how they’d have to adjust their employees’ pay scales and status as either hourly or salaried. There has also been some legal movement on the part of state and federal judges.

With today – December 1 – being the date on which employers would be required to start complying with these new overtime rules, let’s review what has been proposed and what has occurred since then.

A Summary of the Proposed Overtime Rules

The current overtime rules state that any salaried employees who earn over $23,660 each year and meet other requirements do not qualify to receive overtime pay from their employers.

The newly proposed overtime rule means that many more salaried, W-2 employees who earn less than $47,476 annually should be eligible to receive time-and-a-half payments for each overtime hour they work in a given workweek. These new overtime protections are designed to ensure that all employees within this income group are properly compensated – and that they actually are paid time-and-a-half based on their salaries for any overtime work they perform outside of their normal work schedules.

With regard to payroll, time-and-a-half is calculated by multiplying 1.5 times the equivalent hourly rate of a salaried worker after the employee logs more than 40 hours per week. So, the new threshold for which employees should be eligible for overtime pay would nearly double under this proposed law.

The end result of this would mean that employers would be required to track the hours of their salaried employees to be certain that each worker is being fairly compensated for his or her overtime work. Of course, paying someone a salary compared to an hourly wage is typically a way to avoid having to keep a record of specific hours worked.

Ultimate Effects of This Potential Rule Change

If and when the overtime rule takes effect, some business owners may change their pay structures of current salaried employees under the new threshold to hourly workers. Some may opt to give raises to employees near the threshold to avoid overtime compensation altogether. Others may reduce the base pay of employees who often work more than 40 hours, knowing that the overtime compensation will kick in for these employees at some point down the road to make up for their difference in pay.

Other options may include having employers hire more part-time, entry-level, or 1099 independent contract workers to cover the potential overtime duties of full-time, W-2 employees.

In terms of effects on workers, the Department of Labor estimates that roughly 4.2 million American workers would be impacted by the new rules.

Recent Actions Regarding the Overtime Rules

There have been several recent actions taken in an attempt to halt these proposed rules, which were originally set to take effect on Thursday, December 1, 2016.

First, the state of Nevada led an effort of 21 total states to sue the federal government in what became the legal case State of Nevada v. U.S. Department of Labor. Then in late November, U.S. District Judge Amos Mazzant of Texas granted a nationwide injunction in opposition of the rules. In essence, this move put a temporary delay on the enactment of the federal law.

The Future of the Overtime Rules

Through legislation, President Obama originally helped put these new overtime rules on the books. However, as President-elect Trump takes office in January 2017, there is a chance that this law could change or be scrapped entirely under the new administration.

So, while it’s certainly worth being aware of these rules that many employers have already made changes for, they may only be temporary if and when they do become law. At this point, the future looks very unclear when it comes to how employers will handle classifying their employees and covering overtime compensation.

 

To ensure you stay compliant with your payroll obligations as a small business owner, turn to 1-800Accountant today. Call 1-800-222-6868, or check out www.1-800Accountant.

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