March 02, 2016 Practice Points

An Employer Tool for the DOL's New Overtime Rule

With a little planning and execution, employers can avoid at least some of the unpleasant effects of the new rule.

By Gary R. Wheeler – March 2, 2016

Barring a miraculous "oh, nevermind" moment from the U.S. Department of Labor, employers will begin paying overtime to many previously exempt employees later this year. The DOL's proposed rule is set to raise the salary threshold for exemption from the current $23,660 to $50,440. The final rule is now expected to be published in July. While it is possible that the DOL may decide to raise the threshold to some amount less than $50,440, it is highly unlikely that the current level will be left in place.

Once the new limit is set by the DOL, employers will have two main options: (1) increase workers’ salary above the new salary-basis threshold, to avoid paying overtime, or (2) leave employees in the nonexempt category and pay them overtime. Without appropriate planning, employers are likely to face budgetary uncertainty and perhaps disgruntled employees.

Because exempt employees don't typically record their work hours, it may be difficult for them to accurately estimate the overtime hours they have worked historically and anticipate working in the future. So, before the final rule is set, employers should consider requiring exempt employees earning less than $50,440 annually to track their weekly hours worked. Doing so will provide employers with valuable information and help them decide on an appropriate hourly pay rate for a soon-to-be non-exempt employee.

A tool for calculating an hourly rate based on an employee's weekly salary and anticipated overtime:

Below is an Excel spreadsheet formula and an example that may be helpful in arriving at an hourly rate to pay employees so that their final pay is similar to their previous salary even when the employee works overtime. Column A of the spreadsheet should include the weekly salary of the employees and Column B should list all the weekly hours that you anticipate the employee will work. To determine the hourly rate to pay the employees, Column C should include the following formula:

 =(A4/10)/((0.15*(B4-40))+4)

A few example results are set out below:

Weekly Salary

Hours per Week

Hourly Rate

550

50

$10.00

600

45

$12.63

570

48

$10.96

620

52

$10.69

585

43

$13.15

600

60

$8.57

535

40

$13.38

550

37

$15.49

550

33

$18.64

673

50

$12.24

If Sue is employed by Widget Co. as an exempt employee earning $31,200 annually or $600 a week, it is highly likely that she will be a non-exempt employee before the end of the year. When the new overtime regulations become effective, if Widget reflexively sets Sue's hourly rate at $15 an hour (her weekly salary of $600 divided by 40 hours), then it could be in for a rude awakening. If Sue routinely works 45 hours a week (5 hours of overtime), then Widget's overtime payment obligation will be $112.50 per week or $5,850 over the year.

On the other hand, if Widget tracks Sue's work hours for several months before the new salary threshold goes into effect, it would learn that she typically works 45 hours a week and can plan accordingly when establishing her hourly rate. Using the methodology above, if Widget sets Sue's hourly rate at $12.63 an hour, and Sue works 45 hours, she will earn $599.93 per week. Her straight-time pay will be $505.20 (40 x 12.63 = 550.20), her overtime pay will be $94.73 (5 x 18.945 = 94.73), and her overall weekly pay will be $599.93 (550.20 + 94.73 = 599.93).

With a little planning and execution, employers can avoid at least some of the unpleasant effects of the DOL's new overtime rule.

— Gary R. Wheeler, Constangy, Brooks, Smith & Prophete, Jacksonville, FL


Copyright © 2016, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).