A ruling 41 years in the making…The Department of Labor has announced its finalization of economic reforms. One of those being the salary threshold. At present the threshold is $23,660 increasing to $47,467 on December 1, 2016. This has left businesses scrambling to find the solutions to this type of change and employees wondering what to expect moving forward regarding their job and pay.

What does this mean? In layman terms, the amount is increasing for who can be deemed an “exempt employee”. If your employee is receiving an annual compensation of less than $47,467.00 they are entitled to overtime pay for any time worked above 40 hours per week, even if classified as salaried.

As a business owner and/or operator, it is important to maintain the annual budget to ensure profitability; however, it is just as important to maintain your important internal asset your business has…your employees. So, how do you balance the budget, determine what changes to make in an effort to keep with the DOL’s regulations on payroll, all while keeping that important asset happy? The answer, weigh all of the options available. I know, it is easier said than done, however, to meet all of your goals as a business owner, it is vital for you to begin this process now. The great news is you have time between now and December 1, 2016 to apply your analytical skills and plan for success.

Where do you begin? Here are some options:

  1. Reclassify workers while restricting overtime.

This seems like the easiest of all of the options available. Please proceed with caution.

It is prudent to analyze the overtime you pay or may pay on an annual basis. Yes, it is best to reach back and look at trends.

  • Are there certain times of the year where you may end up paying an exorbitant amount of money in overtime pay?
  • Is the workload for one employee far greater than that of another in the same position creating overtime?
  • Is it feasible to restrict overtime?

In an effort to better determine if this is a viable option, it may be beneficial to put a time-tracking solution in place for the remainder of the year. Doing this will allow you to see the possible overtime hours as they stand now, and calculate your options.

*A word of caution: it is wise to remember you are required to pay overtime when it is worked, whether authorized or not.

 

  1. Reclassify workers without restricting overtime.

Change your employees’ classification to “hourly” or “non-exempt employees.

Reclassifying the employees to an hourly rate based on the average number of hours the employee works per week. Factoring in an average amount of overtime, will keep payroll expenses in line.

 

  1. Raise salaries to the new threshold.

Careful fiscal analysis is required here. You, as a business owner, need to ensure this is cost effective to maintaining and growing your bottom line. If employees are regularly working over 40 hours a week, this raise may be beneficial.

Only after completing time tracking analysis will you be in a position to determine your best option. Regardless of your decision, having an open conversation with your employees is vital to making this change a successful one for all.

“The overtime rule is about making sure middle-class jobs pay middle-class wages. Some will see more money in their pockets…some will get more time with their family…and everybody will receive clarity on where they stand.”

Tom Perez

Labor Secretary

GPL is here to make this transition as painless as possible. Schedule your appointment today for assistance with this new ruling by going to http://gpltax.com/ or by calling 425-502-9465. CFO services available M-F 9am to 5pm.

 https://www.dol.gov/whd/overtime/final2016/