Unexpected Costs of the New Overtime Rule

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RECAP: The DOL has updated the FLSA overtime rule. You can read about the changes here. In this article, we’re going to show you the possible repercussions that may come with the new overtime rule.

Business owners are bracing themselves in anticipation for the ripple effects of the new overtime rule. The new legislation is a game changer for most employers and their exempt/salaried employees.

The DOL estimates that the new rule will cause small business owners to spend:

  • One hour of their time on regulatory familiarization;
  • One hour per each affected worker in adjustment costs;
  • Five minutes per week scheduling and monitoring each worker expected to be classified as overtime eligible.

That time adds up quickly for small business owners already stretched for time. This may or may not be a realistic estimate by the DOL. We’re guessing it’s an underestimation. Mind you, this comes from the same people who created this new rule in the first place. Regardless, the time you’ll spend implementing the new overtime rule is one thing, but let’s take a look at the possible costs to your bottom line as well.

Time Tracking

If you have employees who fall under the new salary threshold (eligible for overtime), you will need to obtain a time tracking system to accurately record their work hours and protect your business from FLSA violations.

Employee Morale

Morale issues could arise if you need to reclassify exempt employees as non-exempt. Many employees feel that exempt status is an accomplishment that allows a certain level of flexibility that non-exempt status doesn’t grant. Try to reassure your employees that this is not a demotion in status.

Insurance Costs

Health insurance premiums may see an increase due to health care providers facing higher labor costs. This ripples over to affect employers and employees by making affordable health insurance even more difficult to obtain.


You’ll want to factor in the initial wage classification adjustment costs. You’ll need to decide whether exempt employees should have a salary increase to the new threshold or to change their status to a non-exempt hourly employee. When changing employee status, you’ll need to determine what base hourly pay that employee will receive, what hours they will work, and any policies or overtime approval needed to be covered.

Office Expenses

Telecommuting could prove to be difficult. If salaried employees are now required to track their hours worked (depending on how you choose to handle the new rule), it would make tracking hours from home more difficult. Some employers may choose to encourage hourly employees to work from the office instead of elsewhere.

Administrative costs will total $18.9 billion in the first year implementing the new rule.

We don’t want to scare you with this list of possible unexpected costs of the new overtime rule. We just want to bring awareness to possible outcomes you should be aware of. Take this opportunity to set up your processes to ensure compliance and reduce any chances of litigation down the road.

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Trackbacks & Pingbacks

  1. […] How can you demystify the ins and outs of paying employees in a new way? Kate suggests going right to the source. “The DOL has a great calculator that helps business owners come up with the overtime rate–which is one of the most complicated aspects of reclassifying an employee from exempt to non-exempt.” […]

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