Businesses brace for new overtime rules

Federal changes are on the horizon as updates to the standards regulating overtime pay are slated to go into effect Dec. 1.

But concern is rising for some as the changes may in turn cause employers to cut employees in order to meet the new standard.

On May 16, President Barack Obama announced publication of the Department of Labor’s “Final Rule” updating overtime regulations, according to the U.S. Department of Labor website.

The regulations increase the salary threshold for most white-collar workers to be entitled for overtime pay from roughly $23,000 per year to $47,476 per year. The new salary level was set at the 40th percentile of earnings of full-time salaried workers in the “lowest-wage Census region,” which is the south.

The total compensation requirement for highly compensated employees (HCE) was raised from $100,000 to $134,000.

According to the DOL, roughly 4.2 million workers will have overtime protection as a result of the updates. Approximately 56 percent of those employees, or 2.4 million, are women, according to the DOL website.

In Texas, roughly 370,000 workers would be eligible for overtime protection as a result of the update, which will also affect nonprofit organizations.

In addition, a mechanism was established for updating the salary threshold every three years to “ensure that they continue to provide useful and effective tests for exemption.” 

The DOL estimated employers will spend roughly $592.7 million to comply with the new rule, according to information on the Society for Human Resource website. 

The new rules, however, has led 21 states, including Texas, to file a lawsuit against the DOL, where they seek a preliminary and temporary injunction as they believe the new rules are unlawful.

In addition, the U.S. Chamber of Commerce, along with more than 50 business groups, filed a separate lawsuit challenging the DOL’s new rule.

Sherrie Parks, Dripping Springs Chamber of Commerce executive director, said one concern she had was small businesses not understanding the nuances of the changes. She said small businesses will have to figure out which employees could be exempt or non-exempt and begin tracking hours.

She added businesses would have to make provisions for some employees if they can’t pay for overtime.

The chamber, however, is working to help members and non-members alike prepare themselves for the change. She said the chamber is keeping in touch with attorneys who specialize in employment law and can help businesses. Earlier this month, an attorney from Jackson Lewis law firm spoke at the chamber luncheon and identified what specifics business owners should look at.

“We have a couple of attorneys in our membership that can help,” Parks said.

For Parks, awareness of the upcoming changes is important.“The less prepared you are, the more detrimental it’s going to be,” she said.

J.R. Gonzales, Buda Area Chamber of Commerce Managing Director, is concerned about the threshold increase, which he said was raised 113 percent “virtually overnight.”

His concern extended to businesses that attempt to get employees exempt from the new overtime laws to the new standard.

He said the result could cost companies money, which could lead to employers cutting hours, potentially turning full-time employees to part time.

While he was hesitant to say the new law could place companies out of business, Gonzales said the burden falls upon businesses, especially small business owners.

He said the new rule would affect the bottom line for some companies.

“(Businesses) have to do more number crunching. Some businesses it may not affect that much, while others it may adversely affect them,” Gonzales said. “It may be two to three years before it stabilizes.”

What’s the Final Rule?

  • Increases salary threshold to be eligible for overtime pay from $23,000 per year to $47,476 per year
  • Provides overtime protection to an estimated 4.2 million workers
  • Employers will spend an estimated $592.7 million to comply with the new rule
  • Increases total compensation requirement for highly-compensated employees from $100,000 per year to $134,000 per year.

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