Owners can take advantage of a working capital loan for a variety of reasons, but come 2016, they may need to use one to pay for additional overtime for workers. The U.S. Department of Labor recently announced a proposal that aims to overhaul overtime exemption rules. While the rule has not been passed yet, if left unaltered between now and its passage, the new OT rules can drastically change the employee compensation landscape. Stakeholders have until Sept. 4, 2015 to submit written comments on the proposed rule.
The new rule proposal
The Fair Labor Standards Act ensures workers receive a minimum wage and overtime pay of at least one and one-half times the regular pay rate for any hours worked above 40 hours in a single workweek. Currently, the FLSA provides an overtime exemption for employees classified as executive, administrative, professional, information technology and for certain types of sales, provided these workers make at least $455 a week or $23,660 annually. This level was last changed in 2004. The new pay threshold will be much higher, jumping to $970 per week, or $50,440 per year.
The DOL chose this amount since it’s equal to the 40th percentile of earnings for full-time salaried workers. In addition to the pay-grade exemption, the total annual compensation requirement to exempt highly compensated employees would climb from $100,000 to $122,148, equal to the 90th percentile of earners.
Once the proposed rules are enacted, these salary thresholds will automatically increase. Currently, the DOL is investigating two different methodologies for determining how and when these automatic increases will take hold, either tying the adjustments amounts to inflation levels as measured by the Consumer Price Index, or chaining the levels to the 40th and 90th percentiles of earnings.
Discretionary bonuses will not count toward the salary calculation. However, as interested parties comment on the proposed rule, this aspect could be subject to change.
In total, this upgrade should extend overtime protections to more than 4.68 million workers in 2016, or roughly 3.3 percent of total employed workers. Those most impacted by the exemption alterations include workers with some college or a bachelor’s degree, representing 28.9 percent and 39.7 percent of the share of total affected workers, respectively.
The DOL anticipates a transfer of around $1.18 billion and $1.27 billion from employers’ accounts into employees’ paychecks annually. Despite the government’s financial forecasts, the National Retail Federation commissioned a survey by Oxford Economics, a global analytics, forecasting and advisory firm, to determine the immediate effects. According to respondents, employers will instead adjust workplace structures to compensate for the losses from the new regulations. Among the various techniques employers might attempt include lowering hourly pay rates, reducing weekly hours to fewer than 40 per week to avoid paying overtime and cutting some bonuses and benefits to increase base salaries.
If passed, small-business owners will need to account for these changes in their budgets. While many companies and employees will not be affected by the new regulations, owners should review their employee rosters and schedules to be sure they can make payrolls.