Overtime Pay Rule to Go Into Effect but May Not Last

U.S. employers have spent months adjusting employee schedules, job duties and pay ahead of a new overtime rule that takes effect Dec. 1.

The regulation, which makes millions more workers eligible for overtime pay, was intended as one of President Barack Obama's signature achievements, and a way to meaningfully raise incomes for people in front-line roles in retail, food service and beyond.

The fate of the rule, however, is far from assured as it faces both a strong challenge in the courts and, in Donald Trump, the president-elect, who has vowed to roll back business regulations.

Employers who have made or are considering big changes in their workforce-either by raising managers' salaries to the newly set threshold for overtime pay or eliminating job categories like assistant manager-say the uncertainty is adding to the challenge of preparing for the rule.

The Labor Department rule will require employers to start paying overtime to workers earning salaries of less than $47,476 a year-a threshold the business community says is too big a jump from the current $23,660, which was last updated in 2004. Some workers whose salaries exceed the threshold can qualify for overtime pay depending on job duties.

Wal-Mart Stores Inc. has increased the salaries of its assistant managers and certain other managers to $48,500 from $45,000, ensuring the retailer won't have to pay them time-and-a-half for working more than 40 hours a week. "It was important to maintain this level of management in our stores," said spokesman Kory Lundberg.

Many small-business owners said they want to do right by workers but find the rule onerous and costly. Evan Kelamis, chief executive of the Savoy Restaurant in Tulsa, Okla., recently promoted one hourly employee to a salaried management job, giving him a raise of roughly $15,000 to avoid paying overtime under the new rule.

Had the increase been smaller, "we might have been able to put two individuals on a management salary, which would have helped us grow our leadership team," he said. The manager at the roughly 25-employee restaurant will take on early shifts and extra hours to justify the raise.

David Weil, administrator of the Labor Department's Wage and Hour division, said employers have options to comply and can become more economically efficient. "The overtime rule is not a straitjacket," he said. "A lot of people have reassessed how they're using people" on staff because of the rule.

Twenty-one states and a coalition of more than 50 business groups filed separate lawsuits in September seeking to overturn the overtime regulation, alleging that the rule oversteps the government's authority. The plaintiffs, whose suits have since been consolidated, are expecting a decision soon.

Mr. Trump hasn't commented on the overtime rule, but many Republican lawmakers have criticized it as excessive, suggesting that it may come under scrutiny next year.

Some businesses are still struggling over the rule's finer points. Kevin Rhodes, chief executive of FMI, an Allentown, Pa.-based contract manufacturer, was recently sorting out which of his 81 workers may be affected by the rule. "We are closely looking at five to 10 employees," said Mr. Rhodes.

"I would be hopeful that the rule did not go through or that it was modified slightly" to reduce the increase in the minimum salary," he added.

Fazoli's Chief Executive Carl Howard said his restaurant chain couldn't afford to raise salaries for its 125 assistant general managers to the new threshold. (They generally earn in the low $30,000s, he said.) Yet, he wanted them to continue working 45 hours a week, as they do now, without cutting pay.

So Mr. Howard will make them hourly employees at rates low enough to fund a 45-hour week, including five hours of overtime at time-and-a-half. He also is creating a $165,000 bonus pool to be split among the assistant managers if they can stick to their work hours.

Mr. Howard said his company is taking "a wait-and-see approach" on what happens to the rule next year.

Accounting firm JLP CPAs moved its nine salaried staff accountants and bookkeepers to hourly pay and hired three part-timers to limit overtime costs when tax season starts Jan. 1.

JLP partner Paul Pahoresky figures payroll costs are up 5% because of the changes, in part because salaried employees used to "bank" their overtime hours to take extra time off during slower months.

For Darius Burnette, a JLP accountant who normally works a 45-hour week, the new arrangement means a fatter paycheck but less flexibility. "I like making more money for the same work I was doing," said Mr. Burnette, whose take-home pay is up about 20%. But his hourly status now means he isn't paid for days-or hours-he doesn't work.

Mr. Pahoresky said he isn't sure what JLP would do if the rule is changed or eliminated, but he would be reluctant to take steps that might lower pay or morale. "The challenge is you can't go back," he said.

The changes have boosted efficiency for some. Bridgewater College in Virginia shifted resident directors to hourly pay and eliminated some duties such as handing out parking passes, said Dawn Ohanessian, Director of Residence Life. It also cut the workers' office hours but pays them overtime when absolutely needed. "It's a week by week process," she said.

If you have questions about Overtime Pay, Compliance or any subject for which you are a little bit in the gray area of knowledge, give Ashley Ingram a call or email at 909-481-7222 or email at ashley@delaneyins.com She will be more than happy to help you and remember, she has gone to Washington D.C. and Sacramento to represent YOU.