New federal overtime rules will make millions of workers eligible for overtime pay strengthening labor. But small businesses, as well as larger employers, say this will hurt hiring, revenue, and ultimately worker earnings in the long run.
Consumer groups have been pushing the Obama Administration to take a fresh look at overtime rules for years. In 2014, President Obama signed a memorandum directing the Labor Department to reevaluate existing overtime standards. On May 18, 2016, the Department of Labor’s final rule updating overtime regulations was announced.
Unsurprisingly, labor groups rejoiced while the businesses sector slammed the new rules as burdensome, unnecessary, and a potential job-killer. Business owners say they will face a hard choice: either scale back hiring, hours, and benefits or bump employee pay to push them over the new income threshold below which employees can earn overtime pay. The Labor Department says the new rules will boost workers’ earnings by $12 billion dollars per year, bolstering the lower and middle classes. Business owners point out that money has to come from somewhere, namely, their margins which will negatively impact hiring and job growth.
- The earnings threshold will double: The earnings threshold below which workers are eligible to earn 1.5 times overtime pay will double on December 1st from $23,660 to $47,476.
- The threshold to be updated every three years: Before the current update, the last time the threshold was reevaluated was in 2004. The current update is only the third in over 40 years. This is about change, however, as the new federal regulations call for an examination and update of the threshold every three years. The Labor Department projects the threshold is rising to $51,000 by 2020 in place of inflation.
- In theory, job duties matter: Exemption from overtime pay for workers making between $47,476 and $134,004 will be determined by their “job duties” which encompass “executive, administrative, and professional duties.” This is not a new rule, and employers have typically worked around this admittedly confusing gray area with creative titles and in-name-only promotions.
- Bonuses: For the first time, employers will be able to use non-discretionary bonuses and incentive payments, including commissions, to satisfy up to 10 percent of the standard salary level of $47,476.
The updated overtime regulations set to take effect on December 1st will have a significant impact on businesses and employers of all sizes. Many entry-level jobs will be scaled back or become hourly positions. Many small businesses say the rules will affect external hiring as well as internal promotions, thereby harming workers as a result.
Whatever may come, it’s best to be prepared. Check out these PEO resources: