New overtime rule starts Dec. 1

But what exactly will it mean for Island businesses?


Congratulations! The U.S. Department of Labor is giving you a raise on Dec. 1. Well, maybe not you personally, but salaried workers earning up to $47,476 a year, twice the previous threshold, will now be eligible for overtime pay. The rule is expected to affect 4.2 million workers in the U.S., according to the DOL.

Few Island residents stand to benefit from the new rule, primarily because they 1) are paid on an hourly basis; 2) already earn more than $47,476 a year; or 3) don’t work more than 40 hours a week.

“Our employees are on salary, but they don’t work overtime,” Bob Mone, owner of Mone Insurance, told us. “They work 35-hour weeks; you can set your clock by them.”

Several other Island establishments, who agreed to speak for the record, confirmed the expected limited impact from the new rule.

“The overtime rule won’t have much effect on the Town of Edgartown,” says Elaine Graves, human resources coordinator for Edgartown; “our department heads are on salary and are making more than the cap, and all our other employees are hourly.”

Though the impact on the Island (and the state of Massachusetts) may be limited, rules often come with unintended consequences.

Like all regulations, this one imposes costs on businesses. First, they have to familiarize themselves with the ins and outs of the new rule, or pay a lawyer to explain it to them. Then they have to adjust their payroll systems accordingly. Finally, they have to monitor workers’ hours to ensure they are in compliance.

Small businesses that operate on a shoestring budget with a narrow profit margin may be tempted to replace a full-time salaried worker with two part-time hourly workers to avoid incurring additional overtime costs. It’s not because they are mean or want to treat employees unfairly. It’s a question of survival.

Other businesses will simply raise the salary of an employee earning slightly less than $47,476 to avoid the mandatory overtime pay.

The one thing businesses cannot do is ignore the rule, says Samantha Halem, managing partner at Marshall Halem LLC, a management employment law firm in Wellesley, who has many clients on the Vineyard.

“Sometimes small businesses have a tendency to think these regulations don’t apply to them,” Ms. Halem said. In some cases, they would be correct. But the updated overtime rules, which are incorporated into the Fair Labor Standards Act, “apply to everyone, regardless of size.”

Ignorance of the law is no excuse. The Labor Department doesn’t send out a blast email to alert companies to the new rule and its effective date. Payroll companies aren’t responsible for ensuring that their clients compensate their employees appropriately, Ms. Halem explains. Businesses need to pay attention because “the penalties for getting it wrong, especially in Massachusetts,” are onerous, she says. “Triple damages and attorneys’ fees. It’s a dangerous game to play. If you get caught, the damages can shut you down.”

The rule includes all kinds of exemptions for executive, administrative, and professional employees, specifications for nonprofits, and guidance for higher education institutions, state and local governments, and just about every subcategory you can think of.

If you have nothing better to do on a Sunday afternoon, once your fall garden cleanup is complete, you might want to peruse the DOL website acquainting yourself with the rule. You will learn about the treatment of bonuses for exempt white-collar employees, the interaction between overtime and compensatory time, or how the rule applies to postdoctoral researchers.

From there, you can mosey over to the website of the Federal Register, the government’s daily rule book, for some additional insights. The 162-page rule can be found on page 32,391 in Vol. 81, No. 99, for Monday, May 23, 2016, the day the rule was finalized.

Are your eyes starting to glaze over? If so, you can appreciate the burden, in terms of time and money, imposed on businesses by regulations. They don’t have a choice. Compliance is mandatory. And it doesn’t come cheap. For employers nationwide, the cost of the new overtime rule is expected to average $295 million a year, according to the DOL’s economic impact study.

Perhaps Island businesses should be relieved that they are in a position to ignore the new rule, given their reliance on hourly workers or salaried employees earning in excess of the $47,476 threshold. But to paraphrase House minority leader Nancy Pelosi, businesses had to read the rule in order to know what’s in it. And for businesses, time is money.