What Employers Need to Know About the Department of Labor's Final Rules on Overtime

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What Employers Need to Know About the Department of Labor's Final Rules on Overtime

Recent revisions to the overtime regulations of the Fair Labor Standards Act will have an impact on employee benefits in a number of ways. Employers need to become familiar with the final rule that takes effect on December 1, 2016.

Exempt Employee Annual Salary Thresholds

At an increase of more than double the previous amount, the new rules state that any employee with an annual income below $47,476 must receive compensation at no less than time and a half for any hours worked over 40 in a given week. Although no changes were made to the duties test used to determine exemption status, the annual salary threshold for highly compensated employees who may be considered exempt has been increased from $100,000 to $134,004 under the new rules. In addition, bonuses, commissions and incentives can account for up to 10 percent of annual income.

Increases in Overtime Costs Impact Employee Benefits

Under the new overtime rule, many companies may face a significant increase in overtime costs. In addition to an already strained financial management system facing many small and medium businesses, the cost increases could limit available funds for previously offered benefits. In fact, such benefits could turn into employee-paid voluntary options rather than remaining company-paid recruiting and retention incentives.

Medical, Dental and Vision

As one of the most important benefits offered to employees, health-care options are not something any company should eliminate. Understandably, many companies struggle when it comes to managing health-care benefits for their employees. Frequent changes in economics, health-care regulations and employer responsibilities can add to the already complex issues associated with benefit management.

Retirement, Life Insurance and Disability

Currently, most companies pay the premiums for their employees' group term life insurance plans. However, under the new rules, depending on the specific adjustments made to employee wages, these companies may have increased expenses that could result in additional imputed income for individual employees. Under the new rules, organizations may choose to reclassify their employees or increase wages to an amount at or above the new salary threshold. Certain changes in classification could have an adverse effect on an employee's amount of employer health savings contributions, eligibility for or level of life insurance, disability insurance or retirement benefits.

Handling the Impact

Although many employers may initially feel a need to reduce or eliminate previously offered benefits or drastically change employee pay structures, reducing or eliminating important benefits like health care could wind up hurting businesses more than they may anticipate. Fortunately, several alternatives may help retain employees. The goal is to achieve a positive working environment while still enabling employers to cut some of their overhead costs. The following are a few examples of how this may be accomplished.

Offering Flexible Scheduling

With an increase in young professionals making their way into the workforce, it may be beneficial for employers to rethink current incentives and benefits. What was once effective in attracting and retaining good employees may not be important to the new generation of professionals. As a whole, this generation of workers isn't set on working a typical nine to five, Monday through Friday job. In fact, many prefer to work late or on weekends so they have time for other things in their lives. With flexible schedules on the table during salary negotiations, employers may find that their employees don't mind taking a lower salary.

Providing Opportunities for Telecommuting

Working from home is on the rise across a wide spectrum of industries. In fact, many employees are willing to take a reduced salary in exchange for an opportunity to work from the comfort of their own homes or the local coffee shop. Although this isn't a viable option for some industries or job positions, a significant number of employers can experience a drastic reduction in overhead by simply allowing employees to work remotely. The problem for some, however, may be figuring out how to keep track of nonexempt employee hours. Although a few changes in how employee time is tracked and monitored may be in order, many companies can actually reduce costs with this option.

Offering Employee Recognition Incentives

Many employers may benefit from offering employee initiatives for a job well done. As an alternative to paying higher salaries, not only can worthwhile incentives help keep employees satisfied with their incomes, but it can also enable businesses to continue offering affordable health insurance to their employees.

Raising Salaries to Maintain Exempt Status

Many salaried employees are close enough to the new threshold that employers may want to consider awarding those employees a slightly higher salary to keep them in exempt status. However, only those positions that pass the duties test can take advantage of this option.

Distributing Employee Workload

Employers may wish to consider redistributing the current workloads of their white-collar employees whose salaries fall below the new threshold. This can be achieved by hiring additional workers or shifting job responsibilities within the company so fewer people are working overtime.

Plan for the Future

Although no one knows exactly what the future holds, one thing is for certain; employers need satisfied workers, and employees need fair compensation. Regardless of where a company falls on the spectrum of budget crises and financial maneuvering, changes are inevitable. That's why it's best for employers to avoid making a mistake with a knee-jerk reaction and simply take a step back to look for viable alternatives for managing employee benefits. Seeking assistance from highly skilled professionals in benefit management can also help any business make the decisions that will bring its business and employees the highest level of success.


Melissa P

Denver, Colorado, United States •

Melissa is a freelance writer, photographer and painter with many years of experience helping individuals and businesses attract clients using art, photography and engaging written content. She specializes in writing about research topics that include health, business, self-improvement, relationships and parenting. Her work includes content written for a wide range of business types, including a number of Fortune 500 companies.

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