Rules protecting the American worker from unpaid overtime date back to the 1930s. In 1975, nearly 61 percent of salaried employees were protected under overtime rules compared to just 8 percent today as inflation eroded the protection for many individuals.
Proposed changes to the Department of Labor’s white collar exemptions are expected to increase the number of workers eligible for overtime by five to six million. The change is expected to affect households with an estimated 12.1 million children. The rules will largely impact the retail and hospitality industries, which have a large share of low-level, front-line managers who are currently exempt from overtime rules. The new regulations also seek to put a mechanism in place to update salary threshold levels each year.
The proposed rules, expected to take effect in 2016, raise the salary threshold from $23,660, or $455 a week, to $50,440, or $970 a week. Salaried workers making less than this threshold, with certain exclusions, will enjoy the same protections hourly employees have of making 50 percent over base salary for every hour worked in excess of 40 hours.
Depending on specific circumstances, employees employed as commissioned sales people, computer professionals, drivers, loaders, farmworkers and mechanics can be exempt from the protections. Also, those employed by recreational or seasonal establishments and those with executive or professional roles may also be excluded.
According to an Oxford Economics study, raising the threshold to $808 a week would employ an additional 76,000 part-time employees. In addition to increasing employees, employers may seek to limit hours of existing employees, lowering base pay to take overtime rules into consideration for total compensation purposes, or raising the salaries of those close to the threshold.
In 2014 the Department of Labor filed a suit against LinkedIn for failure to properly pay overtime. This led LinkedIn to pay $6 million in salaries and penalties to workers. The Department of Labor found that LinkedIn had failed to record, account and pay for all hours worked.
As the possible enactment of the rules approaches, business advisors should start to inform their clients of the proposed changes and ensure that clients who did not have to worry about the requirements under the old rules are prepared and have the necessary tracking mechanisms in place to ensure compliance with the new rules. This will afford them valuable lead time in assessing the impact of the rules on their business model and ensure unforeseen damages do not occur.
Ryan Snyder, CPA, is a manager at Mengel, Metzger, Barr & Co. LLP. He can be reached at Rsnyder@mmb-co.com.