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Tips for Tackling the New Overtime Rule

New rule for overtime pay requires a rethinking of compensation.
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For distributors, people are often the largest expense. And with the Department of Labor's new overtime rule, a big concern for many is how to effectively mitigate its impact on the bottom line.

The new rule, slated to go into effect on Dec. 1, doubles the minimum salary for exemption from overtime – from $455 per week ($23,660 annually) to $913 ($47,476). "Nondiscretionary bonuses" may be used to help meet this standard, but they have to be paid at least quarterly. This figure will also be adjusted annually for inflation.

"We're not just talking about warehouse workers to whom we pay an hourly rate plus overtime. We're talking about all of the managerial people who earn much more than minimum wage, but less than $913. They make more than $455, but less than $913," says Nancye Combs, president and CEO of HR Enterprise, a human resources consulting firm in Louisville, KY. "The question is: What are we going to do about those?"

The answer is simple: Compensation plans will have to be adjusted. But there is a little bit of flexibility in how that can be done. In a recent blog for Harvard Business Review, Peter Cappelli, professor of management at the Wharton School, provided some alternatives to directly address the new payroll reality.

First, you can raise the salaries of your managers currently under the new threshold. The second option is to cap hours to 40 hours per week and hire other workers to make up for those lost hours. Both options will have a significant impact on your operational costs.

There are other options – such as cutting pay so much that paying overtime will not overburden your payroll – but such actions may make your business an employer of last resort.

Another option, as laid out by Tammy McCutchen, a principal attorney at the employment and labor law firm Littler Mendelson, in a recent NFIB webinar, involves reassessing your compensation structure across the board. Include evaluation of whether an employee should be salaried or hourly and the role of benefits. This may mean changing how you provide benefits, but be careful about cutting any out entirely.

(Get more tips from McCutchen here.)

The NFIB has challenged the ruling, but in order to ensure you are in compliance by Dec. 1, start your evaluation now.

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