FLSA Overtime Law Change Will Increase Labor Costs

July 15, 2016

1. Overview

On May 18, 2016, the Department of Labor amended the Fair Labor Standards Act regarding worker’s overtime pay. Starting December 1, 2016 the threshold to be considered exempt from overtime pay will increase from $23,600 ($455 per week) to $47,476 ($913 per week). The threshold change will affect about 4 million workers across the country as their status converts from exempt to non-exempt. In addition, the threshold will continue to update to the 40th percentile of salaried workers every three years after the initial change. It is important for employers to understand the steps to take and solutions available in order to strategically prepare for the change coming in December of this year.

2. Steps to Prepare

There are a few simple steps that employers can take in order to make the change quick, easy and stress free.

Pinpoint salaried employees making less than the new threshold of $47,476
Calculate the average number of hours each of these workers work in a week
Note the employees working more than an average of 40 hours a week; these will be the employees affected
Using each affected employee’s salary and average hours worked, calculate their hourly rate

Formula for Hourly Rates	(Salary / 52 weeks) / Hours Worked per Week
Example	Employee A works on average 47 hours a week and earns a salary of $35,000. Employee A’s hourly rate is ($35,000/52)/47 = $14.32

Based upon hourly rate received above, calculate the new compensation for Employee A

Formula for Annual Income under New Regulation	((Hourly Rate x 40 Hours) + (Overtime Rate x Overtime Hours per Week)) x 52 weeks
Example	New compensation for Employee A is (($14.32 x 40) + ($21.48 x 7)) x 52 = $37604.32

Starting December 1^st, 2016, Employee A will be a nonexempt employee and will be making $37,604.32. This is $2,604.32 more than the employee is currently making. There are solutions an employer can take to avoid this increase. It is important to analyze each option strategically, as well as find the most accurate time tracking assistance in order to reduce labor costs.

3. Solutions

Solution 1

Increase salaries above the threshold of $47,476.

Great solution if all your impacted employees are close to the threshold, and might earn more than $47,476 with overtime.

Solution 2

Convert employees with salaries under the new threshold to hourly wages and do not allow them to work overtime.

If as an employer, you can monitor and control overtime, this is a good option.

Solution 3

Do not change employees’ salaries under the new threshold and pay the overtime rate.

If employers are comfortable with the additional labor costs, employees will receive the added compensation.

4. How AMGtime Can Help

Track and monitor hours of salaried employees. Run reports and find patterns on how salaried employees work. Control overtime with an easy dashboard