Beginning December 1, 2016, a new overtime rule goes in effect, changing the overtime eligibility for millions of workers, explains the U.S. Department of Labor. The new rule, which is an update to the Fair Labor Standards Act, is designed to give middle-class workers more take-home pay or more free time.
Previously, organizations paying workers more than a set amount, a salary threshold, could avoid paying workers for overtime. However, the new rule is set to drastically change several key areas of “exempt” versus “non-exempt” workers and how organizations address cost. Consequently, you need to understand how the new rule will impact your organization.
What Does the New Rule Do?
The new rule contains several specific directives to increase the number of workers eligible for overtime in the U.S. Approximately 4.2 million workers will become eligible for overtime under the new rule’s guidelines, explains Entrepreneur.com. Some of the key provisions within the final rule include the following:
- The new rule raises the salary threshold from $455 per week ($23,660 annually) to $955 per week ($47,476 annually).
- The salary threshold will increase every three years, based on wage growth.
- Strengthens overtime protections for salaried workers receiving overtime.
The Impact of the New Rule on Health and Human Services
For health and human services (HHS) organizations, the new rule will bring major changes. Depending on the current salaries and paid overtime eligibility, at least 200,000 health organization workers will be affected by the new rule, reports Healthcare Business and Technology. Since overtime is a major aspect of the HHS culture, budgeting labor costs will grow more difficult for these organizations.
Morale may be affected by the new rule as well, explains Hospitals and Health Networks magazine.
For example, some employees may receive raises to attain the threshold, preventing increased overtime costs. However, others may continue to receive hourly pay. Unfortunately, this will breed hostility among many workers, especially if they do not fully understand why the change in pay is occurring. Additionally, hiring practices may change in the wake of the new overtime rule.
What Do HHS Organizations Need to Do Now?
The obvious choice is to begin preparing for the change. For those that have not already started, preparation will be one of the greatest challenges they face in the remainder of 2016. This preparation should include these key steps.
1. Conduct an Audit
An organization cannot change current processes and prepare for these changes when they do not fully understand the needs and wants of its employees. A thorough audit can help organizations determine precise measurements of labor costs for exempt versus non-exempt employees, including an analysis of how costs may change if specific employees lose exemption status. In other words, you must begin by identifying which workers will become eligible for overtime pay under the new rule.
2. Begin Raising Salaries Appropriately
For workers who will lose exemption, you may consider increasing their base salary. However, the new rule does include a provision to allow employees to retain an exemption if an employer provides commissions or bonuses that value at least 10 percent of the overall salary increase. In other words, organizations could toy with salaries when the salary increase must be paid out by simply creating more holiday bonuses or specific payout times for commissions.
3. Keep Workers at Current Salaries, and Pay Overtime Hours
Sometimes, the best employees are practically impossible to find, so it may be in the best interest of your company to leave current workers at salaried rates and pay overtime for all work over 40 hours. Of course, this means the hourly working time of each employee will need to be tracked and monitored throughout the year, so current payroll operations may need to evolve or be upgraded to include more workers.
4. Change the Schedule to Reduce Weekly Working Hours
Many HHS organizations operate on “9–5” schedules, but organizations providing around-the-clock care may face additional troubles with the new rule. Ultimately, an organization could change shifts and schedules to reduce the overtime needed to provide full services during operating hours. However, this becomes a problem when an organization does not have enough full-time workers to avoid overtime entirely. When this occurs, outsourcing temporary positions may help.
For example, outsourcing administrative functions when key staff members approach overtime can effectively eliminate additional costs without changing the employee’s exemption status. The key to making this option work is ensuring the hourly cost of outsourcing does not exceed the cost of paying overtime to the original employee. Ultimately, there will be increased labor costs, but they can be lowered through outsourcing via agencies.
5. Implement Stronger Record-Keeping Procedures
The new rule will hold organizations to a higher standard of record-keeping regarding employees’ workload and schedule. The exemptions listed in the rule apply exclusively to executive, administration or professional duties. However, some health professionals, such as shift supervisors and direct service providers, must take on dual duties of caring for people and completing management or administrative tasks, such as completing documentation. To ensure compliance with this part of the new rule, an organization must clearly define which hours may count toward administrative, overtime requirements and those that cannot be exempt.
The new overtime rule seems extremely complicated, but it is meant to help organizations more clearly define who is and is not eligible for overtime. If overtime changes do affect a significant number of employees in your HHS organization, consider using the tools and tips from this article to help reduce overall costs and maintain adherence to the new rule.