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Overtime Rules Send Bosses Scrambling

The Wall Street Journal. logo The Wall Street Journal. 7/21/2015 Rachel Feintzeig, Rachel Emma Silverman, Lauren Weber
© Greg Kahn for The Wall Street Journal

Companies are racing to track and manage the hours their employees really work, following a White House proposal that would put millions more U.S. workers in line for overtime pay.

The plans, issued last month by the Labor Department, would more than double the salary threshold that determines which workers are eligible for time-and-a-half pay when working more than 40 hours in a week.

Those rules won’t be finalized for months, but already companies are seeking ways to comply with the law and keep a lid on labor costs. Some firms are installing software that alerts managers when workers are at risk of running up overtime pay, while others are evaluating which staffers should receive salaries and which should switch to hourly pay. And others may discourage checking email after working hours.

Under the proposal, salaried workers earning less than $50,440—a group that includes occupations as diverse as graphic designers, assistant store managers and business analysts—would have to start tracking their hours more closely than ever before.

“It’s a big logistical issue to make sure you’re catching all the time,” says Ron Peppe, a vice president overseeing legal and human-resources functions at Canam Steel Corp., a unit of Canada’s Canam Group Inc. This year, the company assigned a full-time employee to manage compliance reports for new workplace regulations, including overtime.

Mr. Peppe says he’s unsure how many of the firm’s 2,000 U.S. employees might become eligible for overtime.

At Famous Toastery, a restaurant chain with six locations in North Carolina and South Carolina, some jobs are changing to ensure the company doesn’t face runaway labor costs. The chain is moving managers from salaried to hourly pay, and asking employees to perform new duties.

Andrew Combs, the front-of-house manager for the company’s Davidson, N.C., store, is teaching servers to do closing inspections, making sure floors are swept, silverware is clean and glasses are polished, as he drops his hours to 40 a week from around 45 to 50 now.

Meanwhile, Mr. Combs is learning how to cut corned beef and make hollandaise sauce so that he can get the kitchen ready on the mornings when the back-of-house manager comes in later.

The company is installing fingerprint scanners to be used for punching in and out of shifts, so that workers cannot clock in for a co-worker who’s running late. Company leaders will also receive alerts if an employee is nearing 40 hours and still has more shifts left that week, allowing management to intervene before overtime kicks in.

“We don’t want people working more than they should,” says Robert Maynard, Famous Toastery’s chief executive. “If we use [the new rules] to our advantage it won’t hurt us, but you have to work it.”

In 2013, U.S. employers paid workers about $6.7 trillion in wages. The Department of Labor estimates that, if the overtime rule is accepted in its current form, almost $1.5 billion will be transferred from employers to the pockets of their workers in the first year of implementation. The agency estimates that administrative costs will be approximately $593 million in the first year, a number that drops sharply after that. The public can submit comments on the rule until Sept. 4.

Some business leaders have blasted the White House proposal, warning that it could dent job growth, but Thomas Kochan, a professor at the Massachusetts Institute of Technology’s Sloan School of Management, says the new rules could force companies to work more efficiently.

“These kinds of changes historically, while they sound like they’re going to be costly, lead management to look for more efficient ways of doing their business,” says Mr. Kochan. “That helps drive up productivity.”

Vendors of time-tracking systems, such as Kronos Inc., ADP LLC and TriNet Group Inc., say they’ve been inundated with customers’ questions and concerns. ADP recently launched a webinar series for small-business customers called “Do I Have to Pay My Employees for That?” says Tara Wolckenhauer, an ADP division vice president.

The proposed rules raise questions about measuring work done out of the office in small increments, such as responding to an email at 9 p.m. or dialing into a conference call on a Saturday.

Lee Schreter, the co-chair of Littler Mendelson PC’s wage and hour practice, says she’s heard from employers worried about how much the proposal will cost them and what workplace changes it will require. One concern is tracking the work employees do via smartphones and other mobile devices.

Past clients of Ms. Schreter have opted not to give certain employees cellphones or tablet computers, while others used software programs that bar workers from using devices after a certain hour or send warning messages if they work outside designated hours.

California’s strict overtime rules have long forced employers to carefully track workers’ hours. Hourly workers in that state are owed overtime pay if they exceed an eight-hour workday, rather than just a 40-hour workweek.

Brenda Rushforth, the chief human-resources officer at Pomona College in Claremont, Calif., cautions hourly workers, including her assistant, against downloading work email onto their personal mobile devices. She also warns managers and faculty not to expect responses from hourly staff after hours.

“Here in California, if you read your email or check a voice mail, even if you don’t reply, you are deemed to have worked,” she says.

Write to Rachel Feintzeig at rachel.feintzeig@wsj.com, Rachel Emma Silverman at rachel.silverman@wsj.com and Lauren Weber at lauren.weber@wsj.com

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