By: Debra Kabalkin on May 19th, 2016

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What the DOL's Final Rule on Overtime Will Cost Businesses

Total Rewards | Risk Management | Employee Relations

What the DOL's Final Rule on Overtime Will Cost BusinessesWhite-Collar Exemption Changes Are Here

Last March, I wrote an article when the topic of the DOL FLSA White Collar-Exemption change was being discussed.  At that time there was a lot of uncertainty about what the new minimum salary threshold would be; when this rule would take effect; and how much supervisory responsibility an employee would have to have to be considered exempt. Well, wait no more because effective December 1, 2016, the new rules go into effect.

The published final rule states:

  • The minimum salary threshold is $913 per week or $47,476 annually for a full-year worker which equates to the 40th percentile of earnings of full time salaried workers in the lowest wage Census Region.
  • The salary threshold allows employers to use bonuses and incentives to satisfy the salary test.
  • The total annual compensation requirement for highly compensated employees (HCE) is set at $134,004.
  • The compensation levels will automatically update every three years to maintain the levels at the 40th percentile and to ensure the DOL continues to provide useful and effective tests for exemption.

What the DOL's Final Rule on Overtime Will Cost Businesses

According to the Department of Labor, employers will spend an estimated $592.7 million to comply with the new rule and it will cost $254.5 million for businesses to become familiar with the regulation; then another $160.1 million to make necessary adjustments; and $178.1 million in managerial costs. In addition, the DOL estimated the cost from employers to workers will be $1.48 billion, with $1.39 billion of that resulting in more overtime compensation or increased salaries.

There are two categories of exemptions that won’t be affected:

  • Outside sales. There is no change because minimum pay is not required.
  • Computer professionals. There is no change because the current hourly rate of $27.63 per hour or more is higher than the new minimum hourly rate requirement ($22.83).

Like with any change there are many factors to consider other than just the monetary ones.  As a business, you will have to deal with the impact of the reclassification of employees.  There are many issues that can derail a company quickly if not handled correctly. A few things to consider include:

  • Low morale for the employees who are reclassified from exempt to non-exempt as this can create a perception of a demotion;
  • Increased turnover due to reclassified employees who may now have the same job as people they once supervised; and
  • More work for the employees who remain exempt.

We recommend to our clients that they take the necessary steps now to ensure their employees are properly classified and paid correctly, and that applies to you as well.  Planning for these changes is critical to the success of a smooth transition.  Planning now will mean you have time to deliver a thoughtful message to those who may be affected by these changes.