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4 Ways to Comply With New DOL Overtime Pay Rules

Nov 22nd 2016
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By now you’ve heard of the new overtime rule that is set to take effect on Dec. 1, 2016, and though you’re aware of the provisions, you may be struggling to advise on implementing a strategy that is best for your clients and their employees.

If you have been puzzling over the right way to help them restructure their workforce and employee compensation without facing legal complications, see the possible solutions below for handling salaried employees.

1. Provide Raise to Remain Exempt

This sounds simple and very tempting. But there are some implications:

  • Because there will be no strategy in place to handle reclassification or time tracking in a robust way, the businesses that go this route will be faced with the dilemma of revising salaries every three years to keep beating the new thresholds. This revision will not be part of the company’s administrative policy. Instead, it will be a forced hike to escape Fair Labor Standards Act (FLSA) consequences.
  • The overall salary average for the company will also keep increasing because the rule will revise the threshold automatically every three years and you will need to play catch up with your employees’ salaries. New talent that comes in will set compensation expectations based on this inflated number.
  • If the company expands, the burden of more employees getting ritual pay raises every three years might break the back of the business.
  • The workers who are just shy of the threshold will feel dissatisfied when their peers get a hike because of something as externally dictated as a government ruling.

2. Tag Workers as Hourly Employees

These individuals join the ranks of their hourly wage peers. They start using a time-tracking solution to note the hours worked in a week, and their hourly rate is directly determined from the salary they used to receive.

A variation of this approach involves calculating the time workers need to successfully complete their quota of tasks (including possible overtime) and then lowering the wage rate to keep the compensation in check. The caveat here revolves around habit.

Before committing to this course of action, SMBs must orient such employees to the practice of logging hours so that they do not feel restricted or saddled with an additional to-do. It might take a few months for these newly classified workers to feel at ease with their status. They will also struggle with the need to seek authorization for overtime, especially if they have been independent in making these calls.

3. Hire Part-Time Employees to Cut Overtime Down to a Minimum

This is another popular way out for SMBs. If part-time workers can pick up some of the slack, then the 1.5x premium pay rate can be avoided. However, such service providers tend to change affiliations quite frequently, and the hassle of briefing and training new workers every few months might cost the business more – both in terms of money and productivity.

4. Pay Regular Unrevised Salary and Separate Overtime

This is the last alternative available to businesses. It is a rather comprehensive approach to handling the Department of Labor ruling.

The salaried employees do not undergo a status change. The 40 hours tracked don’t determine their pay (it is more of a formality) and this releases them from the anxiety of conforming to a new way of operating.

The only exception applies to overtime. They must log these hours into the system to determine the extra money earned and seek approval from their supervisors before putting in more than the stipulated 40 hours.

Companies may find calculating the hourly wage rate of salaried personnel challenging. Example: A salary of $40,000 equates to a monthly pay of $3,333, weekly pay of $769, and an hourly wage of $19.23.

Final Thoughts

Your SMBs clients must realize that each employee is unique in terms of duties discharged and the personal ability to get things done. There is no one-size-fits-all solution. Instead, one of the four above options (or some combination of them) must be considered for individual workers and the most cost-effective course of action adopted. This is the very reason why compliance with FLSA is going to be laborious and time-consuming.

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