Executives and managers at engineer-to-order manufacturing companies have to ensure operations are in compliance with a host of regulations and industry standards.
One major activity that requires significant oversight is classifying employees and how they are paid. Right now is especially important since starting Dec. 1, 2016, U.S. manufacturers must be prepared to follow a new overtime rule under the federal Fair Labor Standards Act.
According to the new rule from the U.S. Department of Labor (DOL), companies can no longer treat employees who earn less than $47,476 a year as exempt from overtime. This doubles the salary threshold from $455 per week, or $23,600 annually, to $913 per week. This means that anyone who earns less than $47,476 will now qualify for extra compensation if he or she works more than 40 hours in a week. To keep up with inflation, this minimum level will rise every three years based on wage growth over time. Executives, as well as administrative and professional employees do not fall under this category, nor is anyone paid on a salary basis that earns not more than $455 per week.
“Manufacturers should not wait to address the new DOL overtime rule.”
Preparing for this transition will require a few crucial steps that can make the change seamless and efficient. With a Dec. 1 implementation date, this is not something executives and managers at custom-design manufacturing companies should wait to address, and a policy must be put in place as soon as possible. By dealing with new rule immediately, engineer-to-order manufacturers can begin preparing their financials and effectively updating their forecasts.
Tough decisions ahead
The change in the rule will have an economic impact on all companies with employees earning below the $47,476 threshold. This has the the potential to dramatically alter the wages for foremen, leads and even many first-level managers.
As noted by the U.S. Department of Labor, in making this decision about a specific employee, managers must choose between:
1. Paying the worker an hourly rate based on his or her hourly wage, and then overtime for all hours worked in excess of 40 hours.
2. Increasing the employee’s weekly salary to a minimum of $913.
3. Reducing the individual’s hourly rate and then using the new rate to pay overtime beyond 40 hours a week.
4. Decreasing or eliminating overtime.
5. Some combination of these options.
Each individual manufacturer will have specific scenarios they need to address, so there will be pros and cons that work for some companies, but not others. It’s important that all department heads convene to discern which employees will be affected and how the company will address these changes.
Keep excellent records
In addition to tweaking the exemption level for overtime, the new rule also includes additional record keeping mandates that manufacturers need to follow. Managers must keep accurate records for all employees who were previously exempt and fall below the salary threshold. According to Manufacturing Law Blog, this includes a record of:
- Starting time
- Any breaks lasting longer than 10 minutes
- Ending time
- Total hours worked per day
- Total hours worked per week
These records must be kept in accordance with the new rule and will need to be made available if necessary. Failure to comply with the updated regulation could lead to fines or other judgments.
Who can help?
Total ETO is a software business system designed exclusively for the engineer-to-order manufacturing sector. This project-based manufacturing ERP and MRP software system integrates the complex processes of custom-design manufacturing with procurement, manufacturing and accounting, eliminating the duplication of information and accelerating the order process. Exceptional integration between design, purchasing and manufacturing is a key feature of the system. Managers have real-time access to details on every project, including costs against estimates, for each job across the company. Total ETO’s costing features provide all the costs associated with all materials and labor tracked by Project and Job, which can help engineer-to-order manufacturers manage the shifting costs associated with the Department of Labor’s new overtime rule.
Learn more about Total ETO by requesting a demo today.