For the first time in 12 years, the federal government is updating the rules on overtime pay. The new rule, which was announced earlier this year by the Department of Labor and will go into effect on December 1.
The new rule more than doubles the minimum salary that businesses must pay employees in order for them to be exempt from overtime pay requirements. The salary threshold for an employee to be exempt, which was last set in 2004, will increase from $23,660 a year (equivalent to $455 per week) to $47,476 a year (about $913 per week).
The Obama administration says it will deliver long-overdue relief to middle-class workers, but some employer groups and political leaders say it will lead to cutting employee hours. President-elect Donald Trump has suggested that he would favor some type of exemption for small businesses, although it’s unclear what that exemption would entail.
But despite how long it remains in place, the new overtime rule is going into effect in less than a month and one thing is clear: Businesses that have a solid employee time tracking system in place will be much better prepared to adapt to the new changes than those that don’t. Here are five things you need to consider to make sure that your business is compliant with the new overtime rule.
Review all employee wages and hours
With the new threshold, workers who aren’t currently being paid for overtime could suddenly be eligible. Assuming you don’t have the budgeting flexibility to dole out extra pay (and also understand exactly how many additional hours that would add up to each week), you have to make sure that your salaried employees are making less than $47,476 within their allotted 40 hours.
This also means that you’ll need to be more stringent on monitoring employee hours. Whether it’s a foreman who needs to pack up for the day, or an employee who also needs to take travel time into account for getting to and from a job site, tracking this time will be critical.
Scrutinize the possibility of time theft
Off-site work is on the rise in every industry, including construction, home health care and transportation, where most employees are almost always away from an office. That's why time tracking solutions, including , make so much sense for employers whose staff members are commuting from place to place.
The challenge for many businesses – when it comes to capturing hours worked by employees – is time theft. Employees who either inflate or guesstimate the number of hours worked can contribute to significant bottom line losses. This could also be unintentional, particularly when time is logged manually at the end of a long work week.
Timesheet Mobile helped an award-winning cleaning company eliminate time theft by providing workers with an accurate, automated time tracking system to log their hours, mileage and tasks. With our GPS-enabled location technology, employers receive alerts when they approach, as well as leave, job sites and get reminders to clock in and out.
Nowhere to go but up
Unlike the previous rule change in 2004, this one will not be static. The salary threshold will be adjusted every three years, beginning in 2020, to keep pace with inflation.
That’s not just something you have to think about every three years, but a factor that you must continuously consider when setting wages for your employees. Employee payroll is one of the biggest costs for businesses, so it’s important to review this in line with changing salary thresholds for overtime pay.
Comp time doesn’t count
This is already the case under current law, but it’s worth a reminder: It’s not legal to pay workers with comp time instead of overtime wages. Again, plenty of employees might volunteer to work extra hours in exchange for more time off, but unless you’re a government agency, you’re not supposed to accept that offer.
Foster open communication with your workers
There are a number of ways to confront the changing rules, but if you have a key manager who regularly grinds out more than 40 hours a week – overseeing a team of offsite employees, for instance – additional pay may be inevitable.
You have a few options though – for example, you could either choose to pay them for overtime hours worked, or give them a salary increase so that they are now exempt employees (which may be more effective if they are already close to the new threshold).
Whatever you decide, try to keep the dialogue with workers as open as possible, so they feel confident that the path you pursue is in everyone's best interest.