Effective Dec. 1, employers across the United States will be required to compensate salaried employees who make less than $47,460 for working overtime. Currently, that threshold sits at $23,660.
Once the change takes effect, employers will need to decide whether to increase certain workers’ salaries to exceed the new threshold, impose strict limits on overtime for applicable employees, or decrease their base salary to keep the impacted employees’ compensation the same even with the overtime pay.
“You are basically doubling the threshold. That is a big increase. That is going to affect a lot of employees,” said Jan Michele West, a partner at Louisville law firm Goldberg Simpson who specializes in labor and business law.
In addition to the added wage costs, companies are going to have to allocate more resources toward making sure they comply with the new law, West said, including monitoring hours worked. The market will adjust accordingly, but it will take time.
“They have not adjusted this threshold requirement since 2004. I think many people would say it’s time for the increase,” she said. But “they waited so long that it is going to have more of an impact than it would if it had been done gradually.”
President Barack Obama tasked the U.S. Department of Labor with studying and recommending changes to the country’s overtime pay regulations. As the government-created YouTube video above noted, salaried employees can actually earn less than the hourly workers they oversee because they aren’t compensated for working overtime.
Earlier this year, more than 113,000 U.S. citizens signed a petition asking the government to raise the overtime threshold to $50,440 and implement the change quickly. Amid concerns from businesses and business organizations, the Department of Labor recommended increasing the threshold to $47,460 rather than $50,440.
The new rules are expected to affect 4.2 million workers, according to the White House. However, certain types of employees are exempt from overtime pay, including airline employees, computer professionals who earn at least $27.63 per hour, farmhands, movie theater worker and newspaper employees.
The Kentucky Chamber of Commerce released a statement opposing the change.
It noted that the new standard would impact 70,000 Kentucky workers and cost businesses an additional $19 million per year. The new regulations also state that the salary threshold will be updated every three years and could increase the threshold to $51,000 by Jan. 1, 2020, according to the Kentucky Chamber of Commerce.
The state chamber has joined other chambers, including the U.S. Chamber of Commerce, in asking Congress to pass a law that would stop the new regulation from taking place.
“Employers and employees will lose flexibility as more strict time reporting is required. Some workers that benefit from working from home may lose that ability if they must punch a time clock, for example,” the chamber’s statement reads.
Louisville’s chamber of commerce Greater Louisville Inc. followed suit in its denouncement of the new overtime pay regulations.
“While GLI is pleased to see a compromise on the wage level on the overtime rule unveiled today, the measure still makes the critical errors of limiting flexibility, ignoring regional distinctions in compensation, and demanding full implementation by Dec. 1 rather than a phased approach,” Sarah Davasher-Wisdom, COO of GLI, said in a statement.
“GLI continues to support Congressional efforts to reverse the rule or offset its negative effects on business, specifically, Majority Leader (Mitch) McConnell’s proposal to allow workers to opt for paid time off as opposed to overtime pay.”
But not every organization believes the new standard is detrimental.
“The new overtime rule is great news for the 1-in-4 salaried workers in Kentucky who will now be entitled to overtime pay,” Anna Baumann, a research and policy analyst at the Kentucky Center for Economic Policy, said in a statement. “This new rule will benefit Kentucky women, families and workers of color who have watched their wage protections erode over time. The new rule, combined with minimum wage increases in Louisville and Lexington, mean more low- and middle-wage Kentucky workers will be better paid for the work they do.”
The new regulations will have the largest affect on the restaurant and retail industries. The National Retail Federation estimates the new rules will cost retail and restaurant businesses $745 million to comply.
“These rules are a career killer,” NRF’s senior vice president for government relations David French said in a statement. “With the stroke of a pen, the Labor Department is demoting millions of workers. In the retail sector alone, hundreds of thousands of career professionals will lose their status as salaried employees and find themselves reclassified as hourly workers, depriving them of the workplace flexibility and other benefits they so highly-value.”
The change will mostly impact large retail or restaurant chains with hundreds or thousands of employees. Small locally owned restaurants and shops mainly employ hourly workers, who aren’t affected by rule change. Though depending on the store, small-business owners may need to up the salary of their managers and assistant managers or change the hours they work in order to comply.
West, a partner at Goldberg Simpson, said restaurants and retail stores are expected to increase prices to help cover the additional cost.
Executives at Louisville-based steakhouse chain Texas Roadhouse talked about the new overtime regulations during a conference call with analysts earlier this month.
The change will apply to some employees at the corporate headquarters as well as those in stores.
Texas Roadhouse locations have anywhere from three to six managers who will be impacted by the new standards, said Texas Roadhouse founder and CEO Kent Taylor. Its managing partners make a base salary of $45,000 to start, roughly $2,500 below the overtime threshold. However, managers and managing partners often make more than that once bonuses are factored in.
The company is considering cutting back on bonuses and using that money to cover raises for managers and managing partners, so they won’t qualify for overtime pay, but Scott Colosi, president of Texas Roadhouse, said the company will feel an impact no matter what.
“When Kent says we’ll reduce somebody’s incentive compensation, we have decisions to make,” Colosi said. “Will we reduce all the way to zero? Will it be 25 percent of what they used to get, 50 percent? Those are the kinds of decisions that we’re going to have to talk about and make.”
No matter what, employees overall will continue to receive the same amount of compensation, if not more.
“We will not reduce our overall compensation,” Taylor said. “We’ll just kind of shift from one basket to another.”