Overtime Pay Rules: Agency Considerations

DOL Rules Change Effective December 1, 2016


The U.S. Department of Labor has dedicated major resources toward “updating” and “clarifying” the overtime pay regulations that have been in place since 2004. As with the earlier regulations, the new overtime pay rules, which are effective December 1, 2016, are complex, but they apply to virtually all businesses and will necessarily change significant aspects of agency operations.

Get the Facts-Understand the New Overtime Pay Rules
Get the facts. Understand the parameters, definitions, implementation elements and time frames as well as going forward aspects of the rules changes.

Involve your legal and employee compensation subject matter experts as you modify your agency’s policies and pay practices in order to comply with the new requirements.

Assess Pay Grades and Overall Compensation Components Including Benefits Offerings
Evaluate the economic impact of having to recalibrate pay grades to properly compensate employees based upon the new OT threshold.

Consider the ripple effect on salaries of agency employees whose pay is marginally above the OT rules $47,476 threshold or will not be eligible for OT…but…whose level in the organization or time-in-grade might be senior to employees that do become eligible for OT pay.

Re-evaluate your agency’s classification of employees to determine if any currently exempt functions should be reclassified as non-exempt or vice-versa.

Consider implications for raise interval timing for employees will become overtime eligible.

Re-evaluate new hire pay grades for prospective employees that will be eligible for OT pay.

Assess overall compensation components including benefit plan structures:

  • Assess implication of modifying base pay grades for employees that now are overtime eligible
  • Assess implication of modifying bonus or supplemental compensation for employees that will become overtime eligible
  • Assess implication of modifying benefit plan participation eligibility (including any employee contributions toward the cost of benefit plan participation) for employees that will become overtime eligible

Evaluate Overtime Pay Policies, Monitoring and Controls
Evaluate historical employee hours worked above 40 hours per week…estimate OT pay liability based on historic hours worked for employees that are newly eligible for OT pay.

Consider the pros and cons of establishing policies and procedures that either cap hours for OT eligible employees and/or require all OT eligible employees to obtain advanced written authorization (from an authorized supervisor) prior to working more than 40 hours (+10%/+20%) per week.

Establish agency policy for OT eligible agency employees related to monitoring email and responding to working related inquiries (from clients or from agency colleagues) after hours and on weekends or holidays.

Define mechanisms for obtaining accurate and timely reporting of time worked by OT eligible employees.

Consider administrative controls or policy refinements that may be warranted related to any agency flex time, work from anywhere or unlimited time-off policies.

If you have any temp help or freelancers who are compensated through your payroll system and receive a tax reporting document at the end of the year, consider implications, if any, of the new OT pay rules.

Consider Client Servicing & Client Compensation to the Agency
Assess low value or time consuming tasks to determine if any nice-to-do but non-essential work can be reduced/eliminated.

Consider whether services functions that are performed by newly OT eligible employees can be automated.

Discuss with clients: (1) Modifications to FTE hour standards and (2) adjustments to labor-based pricing rates that will be impacted by the added cost of mandated OT rules.

Consider if additions to staff may be warranted to accommodate services functions that are performed by newly OT eligible employees as an alternative to incurring significant OT pay expenses.

As this brief listing makes clear, the potential ramifications arising from the DOL’s new OT regulations will be many and widespread. Agencies would be well-advised to engage as quickly as feasible with the necessary analyses and processes that will be needed to ensure compliance with the requirements.