Businesses are scrambling to comply with a new overtime rule from the Obama administration that is set to take effect Dec. 1.

ADVERTISEMENT

The rule more than doubles the Fair Labor Standards Act pay threshold for who can qualify for overtime, from $23,660 to $47,476 a year.

That has left employers crunching the numbers to avoid taking a financial punch when 4.2 million workers, by a Department of Labor estimate, become newly eligible for overtime pay.

Businesses with employees below the new minimum salary threshold have essentially two options if they want to avoid doling out more overtime pay: change salaried workers to hourly employees to better monitor how much they work, or bump workers’ pay to above the new limit.

Albert Macre and the firm he partners chose the first option, switching three longtime workers from salaried to hourly employees. He said it was the best way the payroll business in Steubenville, Ohio, can comply with the new regulation.

Randy Bradley, who owns a Burger King franchise in Ottumwa, Iowa, and another in Kirksville, Mo., was also forced to convert some of his employees from salaried to hourly.

“I have eight managers who were salaried and five of those eight do not meet this new minimum because they more than doubled it,” he said. “I can’t afford to take everyone to that level.”

Wal-Mart went the opposite route, raising its pay for certain employees nationwide.

The retail giant gave all entry-level store managers a $3,000 raise on Sept. 3, bringing them up to $48,000 a year to keep them exempt from overtime pay.

Wal-Mart spokesman Kory Lundberg said the company isn’t changing any employees from salaried to hourly and it’s not cutting employee hours, either.

“Any hourly associate that works overtime is paid overtime regardless of what they make,” he said.

Sushma Tripathi, vice president of strategic advisory services at ADP, said some companies are preparing to absorb a jump in labor costs.

Those who aren’t, she said, are taking drastic measures to keep costs neutral while still complying with the new regulation.

Some, for example, will convert salaried employees to hourly workers with a lower hourly pay rate that will balance out overtime hours worked. It’s legal, but Tripathi warns: Employers must make sure the new rate is over the minimum wage.

Macre’s company has similarly had to be creative to keep costs down.

Since his business, Payroll + Services, is busier when payroll taxes are due, the company has decided to give its hourly employees pay advances during the months when the work is lighter to compensate for the extra hours employees will work when it’s busy.

The company is also asking its employees to pay a portion of their health insurance for the first time, which Macre expects to be offset by the overtime hours employees do work.

“Maybe we’re in a unique position, but for the 21 years our payroll business has existed, we’ve paid 100 percent of employee healthcare costs,” he said.

“When all is said and done, it’s a zero-sum game for everyone.”

The Labor Department would not comment for the story and instead directed The Hill to a blog post, in which the agency’s wage and hour division administrator said employers have the option of evaluating and realigning employee hours and staff workload.

“There is a misperception out there that there is only one way for employers to comply with our new our new overtime rule when they have white-collar employees who earn less than $47,476 per year: change them from salaried to hourly employees,” David Weill wrote.

“That is just not true.”

Labor rights groups say any option is better than making employees work overtime without compensation.

“Companies have several compliance options at their fingertips including paying their employees for overtime work, giving more work to part-time workers or hiring new employees to share the load,” Bill Samuel, AFL-CIO’s director of government affairs, said in a statement to The Hill.

“All of these options would improve the lives of working people.”

And while business are struggling to comply with what Tripathi called an “unprecedented” change in the rules, they are going to have to readjust in another three years.

The rule calls for an automatic increase in the salary threshold every three years starting Jan. 1, 2020. The new amount will be calculated to equal the 40th percentile of weekly earnings of full-time, non-hourly workers in the lowest-wage Census Region in the second quarter of the year.

Like many others, Macre wishes his business had more than the seven months since the rule was announced in mid-May to comply.