As of December 1, 2016, millions of additional American workers will be eligible for overtime pay. The new Department of Labor (DOL) rule, issued on May 18, raises the minimum salary an employee has to earn in order to qualify to be exempt from overtime pay to $47,476. It was previously set at $23,660. Any employee earning less than the minimum must be paid overtime for all hours they work in excess of 40 hours each week.
Additionally, the new rule will automatically update the salary threshold every three years, basing the new minimum on wage growth over time. These updates will begin on January 1, 2020.
What does this mean for your construction company? According to the DOL’s three-part test:
- If the employee has a fixed salary that does not vary based on the hours or quality of his/her work,
- And is paid at least $913 per week or $47,476 per year,
- And his/her job responsibilities primarily consist of executive, administrative or professional duties,
- He/she will be excluded from overtime pay.
While many business owners, nonprofit groups and universities swiftly criticized the new rule, the DOL has stated that every American deserves a fair day’s pay for a hard day’s work. They believe the new rule will make fair pay a reality for 4.2 million workers, “too many of whom have been left working long hours for no additional pay, taking them away from their families and civic life without any extra compensation.”
Though those in opposition believe the new rule will force contractors to cut workers’ hours, reduce their workforce, pare down employee benefits and have a disruptive effect on a number of industries—including construction—the DOL has countered that employers actually have plenty of options to manage the effect of the new overtime rule on their business.
These options including switching employees from salary to an hourly pay scale and paying time-and-a-half for overtime work. They can also raise the salary of employees who are close to the threshold to avoid the overtime issue entirely, or redistribute workloads so that no one is required to exceed 40 hours per week.
Some experts predict the change may lead to a further increase in lawsuits regarding wages and hours. These have risen dramatically over the past few years and often brought against organizations by groups of employees rather than individual workers. Defense costs are often significant, and double damages and attorney’s fees are frequently awarded. Should such a lawsuit be brought against your construction company, it’s very possible the costs will exceed the amount of wages in dispute. We encourage you to prepare for the new wage rule and contact an advisor if you have questions or need assistance determining if your pay practices are in compliance.