The Obama Administration has unveiled final regulations that will make 4-5 million additional workers eligible for overtime pay starting December 1, 2016. These new rules may provide an opportunity for employers to reimagine employee scheduling; to consider new cloud-based HCM technology; and to adopt innovative scheduling strategies that will not only control overtime costs but improve organizational productivity.  

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New Overtime Rules: Scheduling Wild Card

Tue May 24, 2016

The Obama Administration last week unveiled final regulations that will make 4-5 million additional workers eligible for overtime pay starting December 1, 2016.

The new rules double the salary threshold for an employee to qualify for time-and-a-half overtime pay from $23,660 per year (or $455 a week) to $47,476 (or $913 a week). The rules also create an escalator mechanism to automatically increase the salary threshold every three years. This escalator will be tied to the 40th percentile of weekly earnings for full-time workers in the lowest wage Census region, currently the South.

Intended to address persistent stagnation of real median incomes, the Labor Department said the new rules “will put more money into the pockets of many middle class workers—or give them more free time,” as well as “prevent a future erosion of overtime protections.”

The White House proclaimed that the final rules “will boost wages for workers by $12 billion over the next ten years.” And defending what is an unprecedented increase in the salary threshold the President added that “the share of full-time workers qualifying for overtime based on their salaries has plummeted from 62 percent in 1975 to 7 percent today.” While the new rule will not fully restore the 1975 benchmark, it will mean that 35 percent of full-time salaried workers will be automatically entitled to overtime pay.

Interpreting the New Rules—Communications and Scheduling
Employers are already dissecting this first overtime rules update since 2004, evaluating options for employees whose salaries fall in the zone between the old and new salary cutoffs.

For employees earning just under the new overtime threshold it may make sense to increase salaries above $47,476 so those employees remain overtime exempt. Employers of course need to consider potential wage compression or “rising tide effects” as pay raises bump into salaries of mid-level managers.

A more complicated scenario will unfold for employees who need to be reclassified as non-exempt before December 1. Employers will face two big challenges: communications and scheduling.

  • Communications. Employers need to inform employees who are to be reclassified as overtime non-exempt that the U.S. Government has mandated this change in their status. Furthermore, the rules require that beginning Thursday, December 1 reclassified employees must keep track of their hours so they may be paid extra for hours worked in excess of 40 hours per week.

Key messages should anticipate some pushback from employees who may view the status change as a demotion. Assure employees that every U.S. employer is required to comply with the new rules, regardless of their size, because the Labor Department has determined the previous federal regulations were out of date.

  • Scheduling. That over 4 million more workers will become eligible for overtime pay obviously does not mean that they will actually earn overtime pay. Scheduling will be the new regulations’ “wild card” as employers develop innovative strategies to manage overtime hours while improving worker productivity.

The final rules will prompt managers to schedule smarter, not necessarily longer. Innovative scheduling, meaning to synchronize non-exempt employees’ hours with workloads, could change the way we work. Dynamic scheduling can make sure people are working at the right times and performing the most productive tasks.

New cloud-based human capital management (HCM) solutions will reinforce this trend, giving managers access to real-time data to control overtime hours, simplify compliance and boost productivity.

On one level the new federal overtime regulations present a huge and disruptive compliance challenge to all employers. For-profit and not-for-profit employers, private sector and public sector, small and large, have a short six months to diagnose these new rules, reclassify employees as needed and make sure they are in compliance.

But on another level the new rules provide a special opportunity for these employers to reimagine employee scheduling; to consider new cloud-based HCM technology; and to adopt innovative scheduling strategies that will not only control overtime costs but improve organizational productivity.