What does this mean for employers?
Many employers can look at the table above and quickly notice they're currently employing white-collar, salaried workers at a wage that's below what their overtime salary threshold is scheduled to increase to.
Let's try an example... You're an advertising agency in Buffalo. Last summer you hired a junior copywriter out of college; let's call her Anna. Anna's salary is $40,000 per year, which calculates to $769.23 per week. Anna is currently a salaried employee, and she is exempt. Right now, everything works.
However, on December 31, 2018, the overtime salary threshold will increase to $832 per week - $62.77 per week more than Anna's current weekly wages. That means, according to the New York State Department of Labor because her wages fall below the threshold, you're required to pay Anna overtime (1.5 times her hourly wage) for any hours worked over 40 in a given week. You also know that Anna probably works between 45 and 50 hours a week. For the purpose of this example, we'll take the average and assume Anna works 47.5 hours per week. What are your options?
Option 1: Have Anna track her hours. Don't allow her to work more than 40 hours per week.
This could seem like the simplest fix, but at best this still requires implementing a new timekeeping process. Usually, the most effective way to accomplish that is to adopt a workplace timekeeping system, allowing Anna to punch in and out. At worst, this could have major implications for your business if Anna's sudden reduction in hours makes it harder to complete projects for clients and has an overall negative impact on productivity.
Option 2: Transition Anna to hourly and pay her overtime.
At Anna's wage of $769.23 per week, you're currently paying her $19.23 per hour. We calculate that simply by dividing her weekly wage by 40. (However, since Anna is actually working 47.5 hours per week, practically her hourly pay rate is $16.19 per hour. This is fine, as long as the calculated hourly rate remains below minimum wage.) At the standard overtime rate of 1.5 times the normal hourly rate, Anna's overtime pay rate calculates to $28.85 per hour. Assuming Anna continues to work 47.5 hours per week, that means you should expect to pay Anna an additional 7.5 hours per week at her overtime rate, bringing her average overtime pay to $216.35 per week. When you add that to her currently weekly (salaried) wage of $769.23 per week, suddenly you're paying Anna $985.58 per week. That calculates to $51,250 annually, so you've just given Anna a raise of $11,250 annually, more than 25%.
Option 3: Simply raise Anna's salary above the new overtime salary threshold.
When the overtime salary threshold in Buffalo (located in Erie County) increases from $780 per week to $832 per week on December 31, 2018, you could simply increase her weekly wage above the threshold, to $833 per week. This would give Anna a raise of $63.77 per week and $3,316.04 annually, bringing her annual salary up to $43,316.04. This would represent a fairly sizeable raise of about 8.2%, but it does present some upside. Not only is it less costly than Option 2, but it would also allow you to keep Anna as an exempt employee on salary, and prevent you from having to have Anna track her time and either cap her weekly hours at 40 and/or pay substantial overtime wages.
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In Anna's case, most employers are likely to choose option 3. But Anna is just one example. Options 1 and 2 can be more favorable for different employees with different circumstances. How much you're currently paying them, how many hours they're actually working and their likelihood to adopt a new process like tracking their time without much resistance all play into the decisions that employers must make. And this is just one example. The complexity of adjusting for the new overtime salary threshold increases is compounded when employers need to take several employees into consideration. Regardless, there are always solutions. And whether those solutions involve pay increases, adjustments in employee classifications, and/or installing new timekeeping systems, Complete Payroll has the chops to help you get it done in the best way possible for your business.
Payroll isn't just about paying your employees the right amount, on time, every time. It's also about tax withholding, worker classification and labor law compliance. When you think about it, most of your critical employee data flows through payroll. So it's imperative that your payroll partner knows the laws in and out and is able to help you every step of the way.
Over the last 26+ years, Complete Payroll has helped thousands of employers pay millions of employees properly and lawfully. So all you have to do is focus on what you do best. To learn more about our payroll processing services and to request a price quote or software demo, simply click the button below.
