Steps to Reducing Overtime Costs Amidst the DOL’s Overtime Overhaul

Published by John Dalmata on May 17, 2016

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(2 minute read)

Overtime reclassification is going to hit employers with some significant compliance costs in the first year. The DOL speculates that employers will spend $592.7 million to comply with the pending regulatory update. And that is before factoring administrative costs for managing overtime and tracking employee time.

John Bagyi, one of New York State’s premier labor attorneys from Bond, Schoeneck, and King has been a harbinger of the pending overtime exception update to HR professionals and employers for the past year. “Do not wait for this to happen before you act,” he warned at the 2016 Capital Region Human Resource Association Conference. “Employers need to be making plans now so that they can respond and not react to the DOL’s pending overtime exemption changes.”

Expected rule highlights include an increase in salary level tests. SHRM reports that the white-collar exemption threshold is expected to increase from $23,660 to around $50,000. For many employers this means:

Deciding whether or not to adjust job descriptions and reclassify salaried employees as non-exempt
Determining which non-exempt positions will remain salaried, and making salary increases to comply with the pending new minimum threshold

Other less predictable outcomes for which to prepare include the potential backlash from salaried employees having to conform to the employer’s non-exempt employee time-tracking standard. The hidden impact of turnover is another cost employers will have to manage when getting their organizations into compliance. Employers ought to be diligent in communicating the global impact of the new regulation, mitigating perceptions that reclassification gripes are unique to their company.

Further considerations for employers are the increased costs to manage overtime and absorb associated overtime costs. SHRM reports the annual percentage of payroll attribute to overtime at 5.7% of annual payroll.

For employers forecasting a significant reclassification of employees from exempt to non-exempt, it would be prudent to begin building the processes to track employee hours and avoid unnecessary overtime costs amidst the transition. Some anticipate the regulation forcing a total workforce management reevaluation in order to keep administrative, labor, and compliance costs low.