Employers have just six months to comply with new overtime rules from the U.S. Department of Labor that were finalized last month. The new rules, which take effect December 1, make salaried employees eligible for overtime pay if they earn less than $47,476 per year. That's nearly double the current threshold of $23,660.
The new rules will add to costs and paperwork for employers, and the new non-exempt status may be viewed negatively by those affected, according to Gerald Moore, Chief Operating Officer for Hybrid Transit in Cedar Rapids, Iowa.
Hybrid recently implemented the new overtime policies for its 42 employees. Company management had planned to create some new job classifications anyway, so Hybrid included the overtime regulations even before the final rule was published on May 23. Moore said the overtime rules affect about 90% of Hybrid's employees.
Major elements of the new overtime regulations include:
- Increases the salary threshold for white-collar employees who are exempt from overtime, from the current $23,660 per year to $47,476 per year.
- Automatically updates the salary threshold every three years, based on wage growth.
- Allows for only 10% of commission/bonus pay to be included in the employee’s compensation—and only if paid at least quarterly. (For example, a salesperson with a $40,000 base salary plus $40,000 in commissions will be considered to have total compensation of $44,000.)
- Read a 3-page summary of the rule, or visit the DOT overtime rule web page.
Moore said that Hybrid employees who earn less than $47,476 now have to log their hours each day. Fortunately, Hybrid had recently added new payroll software that included a time clock tool. If employees need to take a call or check on the status of a load in the evening from home, they click a time clock after they log into the company’s computer system.
Employees aren’t happy either
While you might think that front-line employees would celebrate the possibility of overtime pay, that was not the case at Hybrid Transit.
“Our employees considered this a slap in the face. It was a demotion. Their status changed from a salaried employee to one who has to punch a time clock each day,” Moore said.
Overtime pay vs. time off
Under the new overtime rules, company owners will need to decide whether they’ll cap employee hours at 40 per week, or allow them to work overtime. In Hybrid’s case, Moore foresees paying the overtime.
“In this business, we have to be on call 24/7,” he said. “If an employee works late one evening, I can’t simply send him home early on Friday afternoon. That’s when some of our best opportunities come in.”
Calculating hourly rate
Another issue is determining the employee’s hourly rate. Do you simply take the employee’s weekly salary and divide by 40 hours? Salaries often come with the understanding that an employee will need to put in a few extra hours. If an employee typically works 46 hours per week, would you divide his weekly salary by 46—thereby keeping company expenses about the same?
“That’s not going to fly with employees—they’ll consider that a pay cut,” Moore said. “If we did that, we’d lose people. In our area, unemployment is 3.8%. It’s hard enough hiring new people. We’re not going to do something that would cause people to leave.”
What do you think? How will the new overtime rules affect your company? Let us know in the Comments section below, and please note whether you’re an employer or an employee.
A Good TMS Can Help
DAT Keypoint transportation management software was a great help in tracking the commissions paid to each of his 42 employees, said Gerald Moore of Hybrid Transit. Keypoint helped Moore to determine which employees were subject to the new overtime rules. This is just one of the many analytical tools that the TMS offers to brokers. Learn more about DAT Keypoint.