May 24, 2016

How the New Overtime Law Impacts Professional and Grant-based Companies

How the New Overtime Law Impacts Professional and Grant-based Companies

By Kit Dickinson on May 24, 2016

How the New Overtime Law Impacts Professional & Grant-based Companies

The new FLSA overtime rules have been officially announced, and the minimum threshold for overtime-eligible employees will go from $23,660 to $47,476 on December 1, 2016. Companies have until then to figure out all the adjustments they need to make.

With this new law, over 4 million U.S. workers that were exempt are now overtime-eligible. Professional and grant-based organizations that never had to worry about overtime now have to. On top of that, you have to consider how you want that overtime represented for your job costing and financials.

Overtime Implications for Grant- and Project-based Companies

By default, time and attendance systems start charging overtime at the end of day (California) or the week. It’s simple, and it guarantees the right pay amount—but for grant- and project-based organizations, it causes problems because it doesn’t represent how people actually did their work or where the overtime should be burdened to the correct grant/fund/project.

Normally, once you hit that 9th or 41st hour, whichever project or fund you’re working in gets charged for the overtime. Paychecks are accurate, but your departments, projects, or grants are disproportionately charged.

From a visibility perspective, it doesn’t represent how the week should be allocated.

From a financial perspective, one grant or project bears all the cost that others should be sharing. Every project that’s worked in a week shares a responsibility for overtime, whether it was worked on Monday or Friday.

To make sure your job costing and financials are correct, you’ll need to distribute the overtime costing correctly. Allocating overtime proportionately fixes the visibility and financial issues that the default method creates.

How to Allocate Overtime Proportionately

There are two common methods of allocation:

  1. Redistribute overtime in proportion to labor codes worked during the week. For example, if an employee worked 50% of their regular time on Project A and 50% on Project B, the overtime hours would be redistributed equally to Project A and Project B, regardless of where your time and attendance system assigned the overtime hours.
  2. Reclassify the overtime to one-off projects first, and primary projects second. Some companies want to burden the overtime to the “borrowing” projects or jobs first, since the employee may not have been in overtime status if they had just performed their primary work during the pay period. Any remaining overtime in excess of the one-off project is then allocated evenly among the primary accounts.

Easy Overtime Allocation

Unfortunately, these overtime allocation changes are incredibly complex and they usually take a lot of manual effort to do correctly. So most project- and grant-based companies are willing to take a financial hit at the project level and lose accuracy and visibility in exchange for a simpler method.

But automated systems like IDI’s Time Bank can do the heavy lifting for you. Time Bank can reassign the labor distribution for overtime hours according to your specifications. Paychecks are guaranteed accurate every time, and you have complete visibility and financial accuracy for your project accounting.

As the looming switch to new overtime regulations draws near, make sure your organization is aware of all the impacts you should expect. Don’t just be prepared to pay overtime—be prepared for paying it properly.

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