As of May 18th, 2016, the Department of Labor (DOL) finalized their new overtime regulations.
It will extend the overtime pay protections for more than 4 million people in just the first year. For workers, this is fantastic news that could result in more money for them. Yet, businesses need to prepare for these changes and adjust their budgeting processes accordingly.
What You Need to Know About the New Overtime Rules
The DOL has increased the threshold for workers who are entitled to overtime pay. Previously, only workers earning less than $23,660 per year, or $455 per week, were entitled to overtime pay. Now, any worker earning less than $47,476 per year, or $913 per week, is entitled to overtime pay. The definition of overtime has remained the same, however, pertaining only to employees who exceed 40 hours per week for the same company. For highly compensated employees (HCE), the annual compensation requirement has increased from $100,000 to $134,004 per year.
What Will This Change Mean for Your Business?
It's obvious what this change means for employees; potentially more money in their pockets and a greater incentive to work overtime and commit themselves to their companies. Yet, what do these changes mean for businesses? For one, you're going to need to update your financial processes to adjust to the new regulations. Your payroll expenses will likely increase, since more of your employees may now be eligible for overtime pay. Your budget needs to reflect the new rules, so you can reallocate your capital in a way that ensures you pay all employees fairly, without impacting other areas of business funding.
How Should Your Business Respond?
The impact this new rule has will vary from business to business. The first step is determining how many of your employees will be impacted by this rule. Then you can determine the best strategy for responding, whether it's increasing salaries to avoid overtime pay or reallocating finances to accommodate the overtime pay increases. You can also use this new rule as an opportunity to assess the state of your financial processes and see if they are fully meeting your needs as a business.
Updating Your Financial Processes to Improve Response Times
Many organizations have long relied on Excel as a means of planning and modeling finances and allocating resources efficiently. However, a lot has changed over the years. Nowadays, there are more regulations, more economic fluctuations, and increased world trade, all of which complicate finances. In a static world, running your business on an annual budget created in Excel may work. But in a changing world where planning assumptions are changing and new regulations, such as the recent overtime rules, are introduced, your budgeting process may be in need of an overhaul to provide more agility.
When operating within an annual budget, you lack the flexibility and agility to be able to respond to these types of changes quickly. With the new rule in place, you also need a strategy for forecasting work hours efficiently and accurately, to ensure your expense forecasts reflect the new reality. A cloud-based planning solution, with detailed workforce planning capabilities, can help you tackle these goals with ease. It will integrate seamlessly with your current software applications, while enabling you to handle annual budgeting more efficiently, and also implement rolling forecasts that will offer your business more agility.This new regulation is just one of many to come, and your business needs a performance management system that can respond quickly to all future changes.