In May, the U.S. Department of Labor issued a rule that will more than double the minimum salary employers must pay anyone who does not receive overtime.
The new regulation, which takes effect Dec. 1, raises the minimum salary from $23,660 every 52 weeks to $47,476 — or from $455 a week to $913.
In a 40-hour work week, the change is from $11.38 an hour to $22.83.
Anyone making less than the minimum salary has to be paid 1.5 times their normal hourly wage for every hour over 40 worked in a single week.
Such employees must serve in an executive, administrative or professional role — primarily involving office work. Mechanics, electricians and carpenters must be paid overtime regardless of their annual earnings.
Many Brown County businesses employ only hourly workers; the owners fill jobs that would be exempt from overtime rules.
However, the new rules will mean local government and some businesses will be faced with serious budget decisions before the end of the year.
County conundrum
In Brown County government, 19 employees are exempt from overtime compensation.
The county must either raise their annual salaries to the new minimum or begin paying them overtime by the December deadline.
However, local governments actually have much less time to make the decision. The county council’s hearings to decide on the 2017 budget start Aug. 15.
To finalize those budgets, the council will need to know whether it is increasing salaries or setting aside money to pay overtime, Brown County Auditor Beth Mulry said.
Only three of the 19 jobs have a base salary of more than $40,000 a year. The average base salary of the remaining 16 jobs is $34,061.78.
It would cost $215,221.50 to raise all 19 employees to the new minimum. Of that, $11,844.00 would be for the three highest paid employees.
Mulry said the best financial decision for the county is likely to convert most of the 19 jobs to non-exempt, allowing them to receive overtime.
However, the county will have to then budget for overtime and decide what kind of authorization is needed for each of those employees to use it.
Information technology technician is the job closest to meeting the new minimum — $1,674 off. If he became a non-exempt employee, current technician Ric Fox would only have to put in about an hour of overtime each week to reach the new minimum.
Fox, who handles everything from audio at board meetings to building security, is frequently at work outside of normal office hours. It would likely make more sense for the county to raise Fox’s pay than to pay him overtime, Mulry said.
However, that might not be the case for the other 18. “We need to look at each individual position,” Mulry said.
Currently, the lowest base pay for an exempt county job is $29,858.46, or around $14.36 per hour based on a 40-hour week.
At that rate, an employee would have to work about 818 hours of overtime a year — about 16 hours per week — to reach the new minimum.
Other considerations
In the first year, the county would likely find it most beneficial to compensate employees by giving them “comp time” rather than overtime pay, Mulry said.
Unlike almost all private employers, local governments can compensate employees with time off at a time-and-a-half rate: 1.5 hours off per hour worked over 40.
By using comp time for 2017, the county could enter next year’s budget process with a better idea of how to budget for overtime, or decide to continue awarding comp time, Mulry said.
The new federal rule also allows additional compensation — such as bonuses, incentive pay and stipends — to be counted toward the total annual wage, so long as it does not account for more than 10 percent of the total.
All county employees are paid an additional $100 per year they have worked for the county, and some — such as Emergency Management Director Sara Vasquez and highway department Superintendent Mike Magner — are also eligible for call-out pay for additional hours worked.
While Magner — whose base salary is $41,578 — could exceed the minimum salary through call-out pay and longevity, Vasquez — whose base salary is $38,273.46 — would require another 14 years of longevity with the county to reach the new limit.
Elected officials such as Mulry are not covered under the minimum pay requirements.
Currently, the chief deputies of the county clerk, auditor, treasurer, assessor and recorder are overtime-exempt and make between $6,309 and $8,415 less than the elected official they work under.
If any of the chief deputies were raised to the new minimum, they would end up being paid more than their bosses, Mulry said. And if the highest paid chief deputy was paid overtime, she would need to work an average of five more hours per week to equal the pay of the elected official she serves under.
Town and schools
Nashville Town Manager/Economic Development Director Scott Rudd said the town does not yet know how it will deal with employees who are classified as exempt. He estimated there are six, including himself.
Town Clerk-Treasurer Brenda Young said the town council will have to decide what to do in the next few months in order to be able to budget for it.
Nashville Police Chief Ben Seastrom and Assistant Chief Tim True are two of the town employees who would be affected.
If converted to hourly, Seastrom would have to put in 1.5 hours of overtime a week to reach the new minimum. True would have to put in 5 hours weekly.
However, if the town opted to raise both Seastrom and True only to the new minimum, then the chief and assistant chief would be making the same salary.
“We’ll just have to look at it and make sure we’re following rules and adjusting our budget accordingly,” Rudd said.
Outgoing Brown County Schools Superintendent David Shaffer said he and Assistant Superintendent Dennis Goldberg have looked into the issue. However, the district has not decided on whether to reclassify the affected jobs or increase them to the new minimum.
Schools Treasurer Susie Owens said that the total cost of raising all three affected employees to the new minimum would come to $14,698.32.
However, since the school did not track any hours over 40 for the affected employees last year, it is difficult to determine whether paying overtime would be more financially beneficial to the schools than increasing salaries, she said.
“The cost of doing business will go up,” Rudd said. “There’s no doubt about that.”
Getting the business
Rudd said he is concerned about the potential impact the new rule could have on local businesses. He isn’t sure yet how many may be affected.
Brown County Chamber of Commerce President Mike Stieglitz said he hasn’t heard concerns raised among chamber members.
“However, I think it’s a little too early to speculate on any effects until it actually rolls, and we see what happens with it,” he said.
Stieglitz, whose family owns more than one McDonald’s including the one in Nashville, said he didn’t expect the changes would lead to having to reduce employees, though they may have to turn some salaried jobs into hourly.
Stieglitz compared the situation to adjustments businesses had to make to conform to the Affordable Care Act.
“We worked through that, and we came out with our solution and our way forward,” he said. “We’ll do the same thing with this.
“What any business owner is going to do is put pencil to paper and do some math on it, and find out what’s best for the business and what’s best for the employee, and see if there’s a middle ground,” he said.
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The U.S. Department of Labor also created a standard for automatic updates to the minimum salary every three years. Prior to this, the salary had not been updated since 1975.
The new figure is based on the minimum weekly salary earned by the top 60 percent of salaried workers in the lowest-wage census region of the United States. That same standard will be used to recalculate the minimum salary every three years.
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