Utah employers will definitely be feeling the heat this summer. The U.S. Department of Labor (DOL) has issued new overtime regulation that will raise the eligibility ceiling for overtime pay from its current $23,660 annually to $47,476 —nearly doubling the salary test.

Initially, overtime protections in the workplace were implemented by the Fair Labor Standards Act of 1938, and established a criteria that workers be paid time-and-a-half for any hours surpassing a 40 hour work week. For an employee to be exempt they were required to make more than a salary threshold set by the Department of Labor (currently $23,660) and demonstrate that they primarily perform executive, administrative, or professional duties. This criteria will change with the DOL’s most recent regulation adjusting the annual salary threshold for overtime pay to about $47,476, taking effect December 1, 2016.

The White House Press Secretary released a fact sheet about the new regulation titled “Growing Middle Class Paychecks and Helping Working Families Get Ahead By Expanding Overtime Pay.” What the administration does not recognize is the overall negative impact this will have on small business, innovation and the overall economy.  

Small businesses with fixed budgets in competitive industries will struggle to adjust to the added workplace costs. And while employers have a number of options, it’s clear the regulation will have perverse effects on wages throughout the economy.

With this regulation looming, employers are encouraged to perform salary audits to prepare for compliance. Additionally, employers may need to increase salaries above the proposed $47,476 a year or reclassify workers from salaried to hourly,  to avoid the additional costs of overtime if they exceed the new ceiling. Because of this regulation, employers may be forced to perform more reclassifications, which for most employees could mean demotion. From an employer perspective, this could also signal an inevitable decline of middle management. The impact of DOL’s restructuring spans further, however, than additional cost, and the demotion of management to hourly wages. It could also mean diminished morale and limit the  freedom and flexibility of employees.

Congress has sought to fight this regulation with the Protecting Workplace Advancement and Opportunity Act (S. 2707 and H.R. 4773) which would nullify the proposed rule and require the DOL to conduct an economic analysis on its impact. All of Utah’s federal delegation are co-sponsors of their respective Chamber bill’s seeking to defeat the DOL’s regulation and avoid this detrimental federal interference with business. Thank your congressional representative here.