New OT Rule
A recently announced federal rule change will extend overtime pay to more than 4 million U.S. workers. The change has many employers struggling to find ways to either reduce the number of hours worked by middle managers or to pay the increased labor costs.
With the revised rule, the U.S. Department of Labor expands overtime protections to employees who make less than $47,476 annually and removes some of the exemptions in the Fair Labor Standards Act. Previously, the law’s overtime requirements excluded workers who were on salary, who earned a minimum of $455 weekly or $23,660 per year, or who worked in positions classified as administrative, professional or executive.
The new rule, set to take effect on Dec. 1, removes those exclusions and sets the salary baseline for overtime protection at $913 weekly. That pay threshold will be revisited every three years and will be adjusted to match wage growth.
The change will provide nearly all workers who earn less than $47,476 with overtime pay of time and a half. The Obama administration characterized the change as a positive boost to wages for the middle class, but some members of the business community are warning that it may harm workers.
Who Does the New Rule Affect?
According to the Department of Labor, more than 4 million workers will become eligible for overtime pay. The rule excludes certain professionals, including doctors, lawyers, teachers and outside salespersons.
Approximately 35 percent of full-time, salaried workers will become automatically eligible for overtime when the new rule takes effect. That number represents an increase from the current 7 percent. In 1975, some 62 percent of workers qualified for overtime automatically.
The Department of Labor lowered the threshold for the new rule from a proposed $50,440 after reviewing approximately 270,000 public comments, with many coming from members of the business community. In addition, the department included a provision allowing incentive payments and bonuses to count toward as much as 10 percent of the revised salary level.
How Employers Will Meet the New Requirements
Many employers and business interest groups have criticized the rule change, asserting that it will penalize many workers with a perceived reduced status as employers reclassify supervisors as hourly workers.
In some cases, employers are likely to ensure that workers closely track their hours worked. Some companies may increase their reliance on part-time workers to pick up slack caused by cutting overtime for previously exempt employees.
Many employers are likely to ensure that workers are on the job for no more than 40 hours a week and that they do not spend their time at work taking care of personal matters.
Change May Benefit Some Workers
Employee advocates say most workers will benefit from the rules change. In some cases, workers will receive a pay increase to maintain their status as exempt, while others will receive paid overtime when they work extra hours.
Those who must limit their time on the job to 40 hours will benefit from more time to spend with family, further their educations or pick up a second job, proponents of the rule change predict. In addition, part-time workers may receive a boost from extra hours as employers spread work among more team members.
Some argue that the new rule may not be a net positive for all workers, however. For employees who work more slowly and need additional time to finish tasks, the limits on working hours could backfire. Workers eventually could be fired for working overtime that employers must pay whether or not they requested it.
Consult With an Experienced Employment Attorney
Many unique situations in the workplace may be affected by the federal overtime rule change, and both employers and employees can benefit from working with experienced counsel to understand the law. To schedule a consultation, please contact The Wood Law Office, LLC.