Payroll Changes Possible

The possible overtime regulation changes most thought would not happen are looking more likely now. The Obama administration proposed changes to the overtime rules and it now looks like July is when they will roll them out. Companies should be looking now to see how changes may affect their payroll. 

Changes to the Fair Labor Standards Act

The Department of Labor (DOL) released a proposed rule in July 2015 that, if enacted, could impact up to 4.6 million workers; potentially entitling them to receive overtime pay. Those who could qualify include exempt, salaried employees who make less than $50,440 per year (or $970/week). The current threshold is less than half of this amount ($23,600 per year or $455/week).

This proposed rule would significantly change the existing regulations governing which “white collar” workers are entitled to the Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay protections. The rule would increase the salary level threshold that is required to classify an employee as exempt from the FLSA’s minimum wage and overtime pay requirements. While the rule does not have an official effective date, the recently released Fall 2015 Agency Rule List for the DOL, by the Office of Management & Budget, has the final rule timetable slated for July 2016.

The DOL’s updated overtime rule creates an additional workload for employers in order to become compliant. The updates could include reclassifying employees, hour logging, adjusting wages, updating tracking systems, and more.

Accuracy and accountability in time and labor management will be a key factor in ensuring compliance under the new legislation. Additionally, accurately tracking hours will help employers manage costs and productivity.

What the Changes Mean

The DOL estimates are that 4.6 million employees now considered “Exempt” will fall into the overtime requirements. Few of these people actually track work hours, in other words they don’t clock in. Now employers will have to make sure they do so hours for salaried staff can be reported to the government. That’s just one of the issues employer will face.

As the details of the new rules become understood, employers will have to:

• Examine and reclassify their employees
• Calculate and track hours for all staff
• Adjust wages
• Update time and labor tracking systems
• Communicate changes and plans with their staff

Nonexempt

People paid hourly. Their time is usually tracked by “clocking-in” and out each day. The Fair labor Standards Act then says they must be paid at least the minimum wage and overtime at 1.5 times their normal rate for work over 40 hours per week. Nothing really changing for this group.

Exempt

Folks paid a salary. They typically do not “Clock-in.”  Right now the FLSA states if these people earn less than $23,660 per year they are entitled to overtime pay; otherwise not.

The big change is the threshold for the Exempt employees is rising from $23,660 per year to $50,440. Which means salaried people making less than $50,440 per year will be entitled to overtime pay for hours worked over 40 hours per week.

Under analysis, this might not be a massive burden for most companies, but will increase labor costs for a large number of small businesses. The really burdensome aspect is all the extra stuff small businesses will have to do to remain in compliance, such as tracking hours worked for salaried staff.  Most do not have facility to handle that in their payroll systems as many such folks don’t come to an office every morning to check in or check out at the end of the day.

What to Do Now

Businesses have a few ways to mitigate the increased cost. First, reclassify employees from salaried to hourly at their same rate of pay. Secondly, businesses could reclassify employees from salaried to hourly at a reduced pay (assumes they will be working overtime). Also, employees could be reclassified from salaried to hourly at same rate of pay and forbid overtime. Lastly, salaries could be increased above the $50,440 threshold.

It is worth taking a look at your team to see how many people will be affected. Some math will illustrate how much more this change may cost. Once you define how big an issue it is, you are ready to make decisions how you want to handle it.

There are many people fighting the regulation changes. But, observers are saying it is looking more feasible the regs will be released. Those in opposition say instead of boosting the income for 4.5 million workers, this regulation has more chance of eliminating a few million jobs. Worse is the crippling effect on small business across the spectrum. Few larger business will likely be affected.

State by State DOL Data

On the topic of wages, the Bureau of Labor Statistics and Department of Labor released some 2015 wage information.  Here’s the State’s in our region:

The Average Wage is an hourly rate calculated by taking all the payroll paid divided by the number of workers and the hours worked. States with more high earning people will have higher average hourly wages.

The minimum wage is set be each State government, but must be higher than the Federal minimum wage.

Wages for the Green Industry have been rising at double the average rate. It is now a true statement that an entry level worker can make more working for a landscape company than most other entry level hourly jobs!

It’s also a fact that payroll costs are going up, so Green Industry companies will have to sell more, increase margins, or find cost reductions to remain as profitable. Those locked into a certain hourly rate, are finding it difficult to find workers.

Average hourly wage for landscape workers is now around $15 per hour.