DOL overtime rules seen as financial, regulatory burden to employers

Proposed regulations from the Department of Labor that aim to boost the number of workers eligible for overtime pay will likely increase the cost of doing business and may disproportionately affect some sectors, say legal analysts and industry groups.

Last year the White House directed the DOL to update the overtime rules for salaried white-collar workers, “in part to ensure that millions more workers would be entitled to overtime pay,” says Allan Bloom, a partner at law firm Proskauer.

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The proposed rules issued Tuesday raise the minimum level of compensation required for employees to be exempt from overtime regulations. Under the current rules, employees making at least $455 per week are exempt from overtime. The proposed rules increase that threshold to $970 per week by the beginning of 2016. After 2016, the DOL proposes to build in annual increases to the threshold based on nationwide earnings data.

“If it goes the way the DOL expects it to go, anyone making less than $50,400 in the beginning of 2016 will be entitled to overtime pay,” says Bloom. “The takeaway is it’s just going to increase the cost of doing business for employers across the country.”

The Society for Human Resource Management expressed concerns that “the DOL’s proposed rule will further exacerbate an already complicated set of regulations for employers and employees,” and said in a statement that “more than doubling the salary threshold will significantly impact employers and employees and will disproportionately affect the nonprofit and service sector industries, as well as certain geographic areas of the country.”

WorldatWork, a nonprofit HR association and compensation authority, echoed SHRM’s concerns, saying while it is “ready to work with the administration to modernize the Fair Labor Standards Act,” it has “substantial concerns with the proposed regulations.”

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“Raising the salary level to $970 per week, or $50,440 annually is a significant increase,” said Cara Woodson Welch, vice president of external affairs and practice leadership at WorldatWork. “Making more workers eligible to earn overtime pay does not guarantee that companies will then allow those employees to work overtime hours and get paid the overtime rate.”

In light of the proposed regulations, which will be subject to a 60-day comment period following their publication in the Federal Register, employers may want to consider two scenarios, says Bloom.

“If I were an employer, I’d put all my employees on a spread sheet and look at my exempt workers and what their salaries are,” he says. “And obviously anyone you’re paying below the threshold you’ve got to take a look at and decide whether you’re going to increase that person’s compensation – increase their salary to bring them up to what the new level is expected to be – or whether you’re going to reclassify that position and just pay someone overtime pay.”

In general, employers may want to consider auditing their wage and hour practices, says Joel O'Malley, a partner with law firm Dorsey and Whitney. "Employers should be mindful of state laws, which may impose greater restrictions both in terms of the salary-basis and duties requirements for exemptions," he says. "In the wage-and-hour context, whichever law -- state of federal -- is more protective of employees controls."