By Alissa Kline, originally published in Buffalo Business First on 5/19/16.

Phillips Lytle attorney says fed OT changes are ‘a long time coming’

Employers have a lot of payroll decisions to make following new regulations that are set to significantly increase the number of salaried workers who are eligible for overtime pay.

This week, the U.S. Department of Labor issued a final rule that raises the threshold at which employees can collect overtime pay. Instead of $23,660 per year, or $455 per week, the new threshold will be $47,476 per year, or $913 per week.

That means an estimated four million workers who makes less than that $47,476 will qualify for additional pay based on the number of overtime hours they work in any given week. It is the first such increase in 12 years.

James Grasso, a partner at Phillips Lytle LLP in downtown Buffalo, said employers may respond by doing any of the following:

  • Start paying overtime to employees who make less than $47,476 per year and work more than 40 hours per week. “Overtime pay” is defined as time-and-a-half.
  • Raise salaries for employees who make close to $47,476 so that the salaries are above the threshold, thus making those workers exempt from overtime pay rules.
  • Restrict salaried workers to working no more than eight hours per day or 40 hours per week.

The change in overtime pay – which still has to be reviewed by Congress – is set to take effect Dec. 1 of this year.

Grasso, who specializes in labor and employment laws, said the salary-level increase is part of the nation’s living wage movement, including the recent push for $15-per-hour minimum wage laws.

“This increase has been a long time coming,” said Grasso, who specializes in labor and employment law. “The real impetus is the economic divide in the country. Maybe the salary level was okay 12 years ago, but in today’s world (making) just under $24,000 (a year) to support a family of four is at or below the poverty level, so the push is on.”

Business groups have criticized the change. The president and CEO of the American Institute of CPAs said the changes “did little to lessen the likelihood that CPA firms and countless other businesses will be forced to curtail hiring – and may even have to reduce the size of their workforce.”

“The changes would have an especially negative impact on smaller accounting firms and the millions of small business clients they represent that simply cannot afford to raise their salaries for exempt employees above the new proposed threshold but also cannot afford to pay overtime to exempt workers,” Barry Melancon, CPA, said in a release.

Under the rule, the salary level will be updated every three years. Grasso said it is estimated that by the year 2020, the threshold will be above $50,000.

In the meantime, employers will be busy communicating the changes to their workers. That includes potential conversations about pay cuts or reduced hours, Grasso said.

“I’ve been getting a lot of phone calls and giving advice on how to handle particular situations,” Grasso said. “I think people are really going to digest this and analyze their employee structure and cost structure to determine who’s exempt and who’s non-exempt now and what they’ll do (in the future).”