Construction Businesses Must Plan Ahead for Overtime Rule Compliance

Construction companies are likely to be hit hard by the new overtime rule. Plan ahead so you don't get caught short once it goes into effect on December 1.

With construction activity in full swing throughout much of the country, a regulation going into effect on December 1st may be the last thing on your mind. But the new overtime rule announced last month requires your attention sooner than later to avoid major headaches and potential violations once enforcement begins.

Under the final rule issued by the U.S. Department of Labor (DOL), the salary threshold under which most salaried workers are guaranteed overtime has been doubled from $23,660 to $47,476 annually. This will potentially extend overtime to 4.2 million workers, according to DOL estimates. (The Economic Policy Institute puts it at nearly triple this figure.) The DOL says the change was implemented to strengthen overtime protections that eroded dramatically over the past 40 years. The agency indicates the share of full-time workers qualifying for overtime based on their salaries had plummeted from 62% in 1975 to 7% today. (Note: The new rule also raises the “highly compensated employee” threshold from $100,000 to $134,004.) No changes were made to the “duties test”, and the rule now allows bonuses and incentive payments to count toward 10% of the salary threshold.

According to the DOL, the changes are meant to bolster the middle class, and their economic buying power, by boosting eligible workers’ wages by an estimated $12 billion over the next 10 years. Yet, opponents argue the cost to employers, and small businesses in particular, could be substantial. The construction sector has the potential to be among the hardest hit.

Proposed Overtime Changes Represent 113% Increase in Weekly Pay Threshold for Construction

Following publication of the draft regulation last June, economists with the National Association of Home Builders estimated under the new rules that more than 110,000 construction supervisors nationwide could become overtime eligible. Certain office staff may also fall under nonexempt status.

Many arguments continue to be expressed both for and against the rule, and there are already those looking forward to efforts to overturn it under the next presidential administration. Until such an (unprecedented and thus unlikely) event occurs, businesses must prepare themselves for what’s to come.

This will involve tracking hours for newly eligible employees and potentially reclassifying these workers. This process should be started as soon as possible so you can identify the number of nonexempt employees among your workforce and put a plan in place to pay them legally under the new law, without negatively affecting employee morale or digging too deeply into your company’s coffers. Suggestions bandied about include changing their pay structure to an hourly rate that takes into account current overtime pay; raising their pay above the threshold to avoid the need to pay overtime; or maintaining the current pay structure while hiring additional support staff to reduce the number of overtime hours salaried employees must perform.

Some thought, and potentially dollars, will need to be put behind compliance. Start by determining how it will affect your business, then consult with your HR staff, accountant or a consultant knowledgeable in the labor rule to determine the best steps to take for your operation.

Learn more about the overtime rule at www.dol.gov/featured/overtime.

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