The Department of Labor’s updated overtime rule, signed by President Barack Obama on May 18, changes the salary threshold for workers who are exempt from receiving overtime pay. Full-time, salaried workers making $23,660 or more per year do not currently qualify for overtime pay.

On Dec. 1 that salary level increases to $47,476 or more per year or $913 per week, forcing many businesses to re-examine their payroll.

Employees above that threshold and performing one of the executive, administrative or professional duties as defined by the DOL are exempt from the overtime requirement.

Anna Eby, a lawyer focusing on business litigation and appeals, said the overtime regulations have not been updated since 2004 when the threshold was $23,660. That means a 101 percent increase to reach the new $47,476 threshold, Eby said.

“If it was up to me, as an attorney and business owner, [I think] it would be easier to phase this in if the threshold amount was not so high,” Eby said.

According to Eby, the DOL will now automatically update the threshold every three years to maintain the threshold at equal to the 40th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region.

“It has such a big impact because it includes so many people,” Eby said.

The DOL said the new regulations will impact about 4.2 million people, including about 370,000 in Texas.

Changes in the workplace

Public agencies, schools and health care facilities as well as businesses that are engaged in commerce and have a gross annual income of $500,000 or more must comply with the new regulations, according to the DOL.

In addition, under the new regulations, nondiscretionary bonuses and commissions can make up 10 percent of the new salary requirement for exempt employees.

Garza said the new regulations allow businesses the flexibility to decide how to adapt to the new overtime threshold. He said options include hiring additional staff to cut down on overtime, raising annual salaries to more than $47,476 or categorizing employees as nonexempt, which means they would be paid hourly and would be entitled to time-and-a-half pay for every hour they work in excess of 40 hours per week.

But Sheldon said it is not that simple, especially when some businesses are unable to pay overtime.

“What is happening with a lot of small businesses and nonprofits is that they aren’t going to be able to pay those overtime hours,” Sheldon said. "They will be expecting more out of employees in less time and not hiring additional people. That is what is going to be the problem.”

Area employers said there can be other issues with switching employees from salary to hourly.

“Sometimes they feel they are losing their professionalism,” said Tracy Jackson, human resources manager for Tasus Corp. in Georgetown.

Sheldon said being switched over to hourly feels like a demotion for some employees.

“It’s human nature where if you are in a salary position, people have kind of earned that level of professionalism and then are told we are bumping you back because of a law, there is a sense of it being a demotion,” Sheldon said. “But it is a reality we all have to face.”

Company morale and productivity are also things Sheldon said she could see being affected by the new regulations.

“I think a lot of salaried workers tend to understand that overtime hours are sort of factored into that salary, so they don’t count hours,” Sheldon said. “They just look at doing the best job they can for their company. I think it is going to be a kind of shift in culture.”

Garza said profitability depends on how many hours it takes to achieve a certain goal.

“A lot of this is about numbers and math,” he said. “This rule doesn’t change any of that.”

If an employer is paying a worker $24,000 a year and expecting him or her to devote 60 hours a week, the new law will likely cut into the employer’s profit margin, he said. But most employers are intelligent and business-savvy enough to find a way to comply with the new regulations without letting it affect their bottom line, Garza said.

Effect in Georgetown

Sheldon said she is working with the chamber to make sure businesses are informed of the regulations.

“I have spoken to several different companies about the impact on their business. Some are adjusting accordingly and not seeing it as an overwhelming problem,” Sheldon said. “It is going to be difficult for nonprofits and smaller companies in terms of adjusting hourly rates upward, [but] we are finding that most people are preparing for this.”

Similar to Sheldon, Jackson said Tasus Corp. has accepted that the regulations will go into effect Dec. 1 and has braced itself.

“It has not affected us that much, to be quite honest. We have been preparing,” Jackson said.

Sheldon said the unemployment rate in Georgetown is about 4 percent. That combined with the close proximity to Austin makes pay in the area already competitive.

“We are in the fastest-growing city of 50,000 or more in the U.S., so we are finding that employers are more competitive in what they are paying because we have to be,” Sheldon said. “We are competing with Austin and the entire region, and people are coming here for good jobs and our cost of living is increasing a little bit so employers have been increasing the wages they are paying, so I think that offsets a little bit some of the challenges.”

Suing the DOL

More than 50 Texas business organizations filed a lawsuit Sept. 20 in the U.S. District Court against the DOL’s overtime rule, including the Cedar Park and Round Rock chambers of commerce.

The lawsuit, led by the U.S. Chamber of Commerce, the National Association of Manufacturers and the Texas Association of Business, claims the federal government “went too far in the new overtime regulation.”

The suit states that by setting an “excessively high” salary threshold for determining who qualifies as executive, administrative and professional employees, the rule departs from the intent established by Congress in the Fair Labor Standards Act.

The Georgetown chamber is keeping its eye on the lawsuit but it is not directly involved, Sheldon said. Another act was introduced by Senate and House Republicans in March urging the DOL to revisit the regulations and perform an economic analysis, she said.

“While we wanted to put our support behind a more thorough review of this rule, we are not necessarily into the lobbying end of it,” Sheldon said. “We will, however, inform our members as to what the best course of action is and educate them and work with our lawmakers to ensure we are standing up for businesses. But we did not feel it was appropriate for us to be a part of the lawsuit at this time.”

Sheldon said the U.S. chamber is currently seeking support for an act that would “extend the implementation date of the new overtime regulation for six months.”

The state of Texas also filed its own federal lawsuit against the pending regulations Sept. 20, joining a coalition of 21 states.

Garza said he is disappointed Texas would fight a federal rule that benefits working people.

“I don’t think this lawsuit is in line with Texas values,” he said. “We think that ultimately the lawsuit is going to fail.”

Eby said she does not expect much to come of the lawsuits.

“It would surprise me if the lawsuits were successful, or if they delayed the rule going into effect,” Eby said. “I don’t think it would be a wise thing to expect it to change and not be prepared.”

Preparation for Dec. 1

Garza said Texas workers are some of the most highly trained in the world, and regardless of regulations, employers will continue to do business in the state. He also said the new overtime rule is narrow, and it does not affect any sector that relies on blue-collar workers.

“I think that most Texans believe that if you work hard … you should be compensated for it,” Garza said.

Sheldon said she is unsure of the future but urges businesses to be prepared. 

“It is hard to predict what will happen, but every company needs to take a look at their internal organization and see how they are going to adjust accordingly,” Sheldon said. “There is really no doubt that this is going to become law Dec. 1.”