Wages and compensation account for the single largest chunk of most companies’ expenses, and they tend to grow over time. The Department of Labor has recently instituted a new nationwide policy on overtime, and while the new rule has not yet been finalized, it could represent a dramatic shift in payroll costs for employers and a possible raise for many management-level employees.
The proposed rule would require managerial and salaried employees currently making under $50,440 per year to receive overtime pay for working over 40 hours per week, even if those workers are salaried. As the Department of Labor points out, this income level works out to $970 per week and is at roughly the 40th percentile of week-to-week earnings among salaried employees. Current standards allow any worker making more than $23,660 a year – $455 per week – to be considered a manager and placed on salary. The last update to this threshold was 12 years ago in 2004.
Salaried workers have historically not been covered by overtime pay requirements, and this change would enable them to claim the same time-and-a-half rate as hourly workers receive. Although the rule is in the notification phase now, implementation is expected as soon as September of this year. When it takes effect, the new regulations on overtime pay could impact as many as 15 million salaried workers nationally.
For CFOs, the additional pay raises questions about how to make the same payroll allotment stretch to fit either additional hours at overtime rates or an overall pay raise to more than $50,400 annually. Some industries will be affected more than others by the change when it occurs; restaurateurs, universities, media outlets, and retail are among the sectors most likely to see overhauls to payroll.
Here’s how CFOs can prepare for the changes:
- Assess how many of your employees would be affected. Not every firm will feel the pinch from this change, and in parts of the country that tend to have high incomes and costs of living, the $50,400 threshold may not be far off for salaried workers. A raise to this threshold could be a win-win scenario for companies, securing top talent while saving on payroll costs.
- Consider hiring. It may seem paradoxical to hire new employees to save on payroll expenses, but depending on how many hours your salaried staff put in during a typical week, hiring new personnel to fill the gaps and ensuring that salaried workers put in 40-hour weeks might be the most economical solution. This possibility would also allow you to keep your most valuable salaried personnel and maintain their current level of benefits and compensation.
- Streamline the status quo. For many companies, the best choice may be to find ways to optimize your current work structure. If salaried workers currently exceed the 40-hour cutoff by only a few hours, then paying these personnel the overtime they are due under the new rule could be the least disruptive choice. Ensuring that work processes are streamlined to minimize overtime could reduce a large payroll overrun into a manageable one.
Having a full quarter or more in which to prepare for this change to overtime rules is critical to choosing your best route to a fair, economical solution for you and your salaried personnel.