Overview of the New Overtime Wage Law and Its Impact on the Construction Industry

Are you paying your employees correctly? Recent changes in overtime wage laws for construction companies aim to protect workers so they are paid fairly, especially when they work more than 40 hours a week. 

 In this article, we’ll examine why the new overtime wage law is crucial for construction companies to ensure compliance, manage labor costs, and maintain project efficiency. 
 

What is the New Overtime Law? 

Overtime laws have been around since the 1860s and have gone through many changes and reiterations in that time. The eight-hour workday was established in 1867, but it wasn’t until 1938 when the Fair Labor Standards Act (FLSA) limited the workweek to 44 hours, and then ultimately to the 40 hours we have today. 

The FLSA also established overtime laws and considerations. Federal overtime laws were updated most recently in 2020 to increase the threshold for exempt employees. 

The latest overtime changes, which went into effect July 1, 2024, were designed to increase the salary threshold for exempt employees. The new rules increase the salary level at which workers can receive overtime pay protections through FLSA. According to the Department of Labor, “Long periods between increases to the salary requirement after 1975 have caused an erosion of the real value of the salary threshold, lessening its effectiveness in helping to identify exempt EAP employees.” 

Key Provisions of the New Law 

What’s in the new law? There are two key provisions: 

1. Definition of overtime and qualifying criteria. Under the new law, salaried workers who earn less than $844 per week will become eligible for overtime pay. On January 1, 2025, that number increases to salaried workers who earn less than $1,128 per week. These are increased from the previous mark of $684 per week. 

1. New overtime thresholds and rates. The new law increases the total compensation requirement for highly compensated employees to $132,964 and then to $151,164 per year on January 1, 2025. Employees over this threshold aren’t entitled to overtime pay. 

 The new law in the construction industry means that many more employees (including those in administrative or supervisory roles) will now be eligible for overtime pay.

3 Immediate Challenges for Construction Companies 

The construction industry often relies on overtime work to get projects finished on time. With that in mind, the new law has immediate impacts on the industry, including the following: 

Financial Implications 

• Increased labor costs. Higher overtime rates mean companies will have to spend more on their employees, especially with more workers eligible for overtime payments. Labor costs can be up to 50% of a project’s budget, so increased costs will likely impact overall budgets. 

• Budget adjustments. Higher labor costs have a ripple effect on the entire company and will force construction companies to evaluate their cost management strategies and adjust their budgets to ensure they have enough money to pay their overtime employees. 

Operational Changes 

• Need for updated systems. Staying compliant with overtime rules requires accurate recordkeeping and time tracking. Companies may need to update their payroll and time tracking systems to accurately track employee overtime. 

• Potential shifts in project timelines. With more employees eligible for overtime, construction companies may need to adjust workforce scheduling, which could shift project timelines. The impact could push projects further out or increase the timeframe from start to finish.  

Compliance and Legal Risks 

• Adhering to the new law to avoid fines. Staying compliant is crucial for construction companies to avoid costly and time-consuming fines and penalties. 

• Legal challenges and disputes. A company may face legal issues if it doesn’t comply with the new overtime rules. These disputes can hurt a company’s reputation and pull resources away from other projects. 

How Construction Companies Can Manage the Change 

The new law brings changes, but it also provides more protection for your employees. Here are two strategies to manage the impact and keep your business moving forward. 

Enhanced Time Tracking and Payroll Systems 

Automated time tracking solutions accurately capture overtime and ensure it is calculated correctly so the company can stay compliant. Knowing who is eligible for overtime and what hours qualify as overtime hours can be complex to calculate by hand, so upgrading your payroll system to handle the new overtime calculations automatically can create more efficient and accurate processes. These enhanced systems can also help adjust work schedules to minimize overtime and help schedule part-time or temporary workers to balance labor needs—without having to schedule and calculate everything manually. 

Training and Education 

Employees and leaders have their hands full with other projects, but it’s important to keep them informed about the new law so employees know their rights and supervisors and leaders understand the impact of the overtime laws on the company. Regular training sessions on compliance and best practices can help get everyone on board and ensure all employees understand the new overtime rules and how to properly track their hours and process payroll.

Lasting Changes for Construction Companies 

Aside from immediate changes, the new overtime law will also have lasting effects on construction companies that will require long-term considerations and changes. 

Continuous Monitoring and Adjustment 

Companies need to review labor costs and overtime expenditures regularly. Labor costs can quickly grow and cut into other budget areas, so being aware of rising costs and evaluating needs can help companies stay in line. This also requires adjusting project budgets and timelines as needed for an accurate and realistic look at finances. 

Leveraging Technology for Compliance 

If staying compliant with the new laws seems overwhelming, you have resources that can help. Construction management software can streamline compliance efforts and automatically calculate overtime, track budgets, and find patterns in labor costs over time. Integrating time tracking with project management tools provides leaders with real-time insights into employees’ hours and the overall time and cost of each project. 

Engaging with Legal and HR Experts 

Don’t ignore questions or issues that arise about the new law. Consult with legal experts as you navigate complex compliance issues, especially if you have most or all of your employees eligible for overtime. You can also leverage HR professionals to manage workforce changes effectively and ensure your internal HR team has the training and tools it needs to effectively track wages and overtime. 
 

Stay Compliant with hh2 

Book your demo to see how hh2’s Remote Payroll tool can help you navigate and stay compliant with the new overtime wage laws effectively. Click here to learn more.