Fed Overtime Threshold Changes for Salaried Employees

By Anthony Birritteri On May 18, 2016

Today, the US Department of Labor announced new federal overtime regulations allowing salaried white-collared employees – those earning up to $47,476 per year – to receive time-and-a-half if they work more than 40 hours per week. This is up from the $23,660 threshold. The update will impact 4.2 million workers across the country (132,000 in New Jersey) who will either gain new overtime protections or get raises to the new salary threshold, according to the Labor Department. Employers have just over seventh months to see how they will comply with the rule.

The overtime rule was last updated more than 10 years ago.

According to New Jersey Business & Industry President and CEO Michele Siekerka, “The proposed overtime rules will mean that employers would have to increase employee salaries to keep them exempt, or reclassify them as hourly employees and possibly pay them overtime.  For many of our members this could have serious financial consequences.”

A Washington Post article, reported the change is being “criticized by small business owners, nonprofit groups and universities that say they may have to switch salaried workers to hourly positions to afford the new threshold. And instead of seeing bigger paychecks, some salaried workers may be assigned fewer hours.”

The rules go into effect on December 1. According to Anthony Rainone, a labor and employment services attorney at Brach Eichler, companies that formerly paid their exempt workers up to $455 per week and avoided paying overtime, now have to comply with a $913 per week threshold. “That’s almost double. Either businesses will increase payroll costs to keep the salary exemptions or go to an hours-based system and keep track of overtime,” Rainone tells New Jersey Business.

According to Carl Van Horn, director of the John J. Heldrich Center for Workforce Development, at Rutgers University in New Brunswick, businesses will react in a variety of ways. “If a manager is making close to the new threshold, the company may increase his or her salary above the mark – making them exempt – so that overtime doesn’t have to be paid. Another approach is to monitor overtime more closely, so that if a worker is making $30,000, for example, he or she will not give be given overtime. There may also be cases where a company decides to split one job into two in order to avoid paying overtime,” he says.

Rainone adds, “You can divide the job, but if you offer benefits to two workers, it may not be economically beneficial to hire a second employee.”

Van Horn explains that since New Jersey is already a high-wage state, the impact of the new regulation will be less severe than in, for example, certain low-wage southern states. “A lot of businesses here are already paying their managers more than the new threshold, so it will not affect them at all,” he says.

Industries that may feel more of an impact include food services, especially fast food operations, where exempt managers usually work for low salaries. According to Van Horn, “The ideas behind this [the new threshold] is to adjust to the reality that pay levels are low for what one considers a manager [in these industries].

Doug Kuiken, president of Kuiken Brothers Company, Inc., a Fair Lawn-based building supply company with some 285 employees at seven New Jersey locations and one in New York, says he is not too concerned about the impact of the regulation because the majority of his managers earn salaries above the threshold. However, he comments that he has never seen a piece of federal legislation that didn’t cost business owners and operators money. When considering the state’s business climate in general, he says this regulation is “just another piece of legislation at the wrong time.”

Siekerka adds, “With employers facing an increased minimum wage, mandatory paid sick leave and other mandates they are already at their breaking point and cannot absorb the impact of the new rules.”

Nationwide, 22.5 million Americans are currently classified as “overtime exempt.”

 

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