New rules about who is exempt from overtime and who must earn it will be a jolt for many companies around the nation. However, the cost and implications won’t be limited to how employees are paid.
“Much of the attention is focused on the impact on employees’ wages,” Jaqueline Breslin writes for BenefitsPro. “But, these changes will also have a huge influence on employee benefits policies as employers decide on their approaches to stay compliant with the new regulations.”
Here are four factors to watch for.
Employers may reclassify employees as a part of the new rules. Carefully recording these changes will be crucial to making sure employees’ benefits are appropriate. Possible problems: do salaried employees earn more vacation time than their hourly counterparts? How will that affect reclassified employees?
“Some benefits, such as family and medical leave, are mandatory under federal or state law,” Breslin writes. “However, other benefits, such as disability or dental insurance, are optional, so employers might need to review who is entitled to certain bonus benefits—particularly with any reclassified employees.”
A looming deadline
Breslin advises employers to learn about the changes and develop a calendar of deadlines. “Plan now, but be thoughtful and thorough,” she writes. “The December 1, 2016, deadline might seem far away, but the sooner employers get moving on adapting their policies, the less at risk they are for unexpected penalties and fines due to avoidable errors.”
Associated costs, including matching contributions
You know how salaries will change, but plan for higher benefit costs, too, writes Lenny Sanicola for the Huffington Post. “From a retirement perspective, a change in base salaries and wages will likely result in an increase in employer matching contributions,” Sanicola writes. “Many plans include overtime in their plan definition of compensation. The change could also affect plans that exclude overtime pay from the plan’s definition of compensation if the new overtime pay causes the definition to become discriminatory in favor of highly compensated employees.”
And, employers should keep an eye on the future. “The new salary threshold will be updated every three years to make sure it stays at the 40th percentile of full-time salaries in the lowest income region of the country,” writes Nick Otto for Employee Benefit News. “Based on wage growth projections, that means the overtime threshold could rise to $51,000 by 2020.”
Challenges in communication and fair treatment
It’s an uncertain time for many, especially those whose classification will be changing. “The regulatory environment is volatile and it’s crucial to provide effective, clear communication to employees on the issues impacting employees the most, such as benefits eligibility and wage increases,” Breslin writes.
And, be careful to know the line between treating individual employees differently, compared to treating groups differently, Sanicola writes: “The laws surrounding most employee benefits plans allow various classifications to be deemed non-discriminatory as long as all those individuals within the same classification are treated the same.”