New Rules Regarding Overtime Coming Soon
When you’re an employer, you have a lot to keep track of when it comes to managing your workforce, and it seems like the rules are always changing! One of the changes coming soon by the federal Department of Labor (DOL) is new rules regarding overtime pay and who is eligible to receive it. These changes could have a significant impact on businesses, particularly in terms of labor costs and compliance. Employers need to be aware that they might need to make salary or scheduling changes to comply with the new rules.
The Fair Labor Standards Act, which covers nearly all private and public employers, requires that employees be paid overtime unless they are classified as “exempt” from overtime. There are several tests that must be met for an employee to be classified as exempt, including:
1. Salary basis. The employee must be paid a salary, with no deductions in pay for quantity or quality of work.
2. Salary level. The employee must be paid salary no less than the minimum set by the DOL’s rules.
3. Duties. The employee’s duties must meet the DOL’s definition of professional, administrative, or executive. The DOL has published fact sheets with detailed information regarding who is eligible to be classified as exempt under these categories, which can be found at https://www.dol.gov/agencies/whd/fact-sheets/17a-overtime.
The new rules concern the salary level test. Currently, for an employee to be classified as exempt from overtime, he or she must be paid a salary of at least $684.00 per week. The new rules would increase this amount to $1059.00 per week – an increase of almost 55%. This means that employees with an annualized income of less than $55,068 must be paid overtime if they work over 40 hours in any week.
What should employers do now?
Employers should review the salaries of all employees who are classified as exempt to see if they are over the threshold of $55,068 annually. If their salary is lower than the threshold, there are some options they can take to comply, with pros and cons to each:
1. Raise the employee’s salary to meet the threshold. This is obviously a budget decision, and although it will help the employer comply with the new rules, it might not be a feasible choice.
2. Change the employee’s status to hourly. This seems simple enough, but it could have a backlash with morale issues because it could seem like a demotion to employees who have been paid on a salary basis.
3. Continue to pay the employee the normal salary, and pay time and a half for any overtime hours worked. This changes the employee’s status to “salaried, non-exempt.” This can be more of an administrative burden, but it could be the most cost-effective.
It should be noted that the new rules also build in automatic increases to the salary threshold every three years. Employers should plan for regular salary reviews to make sure they stay in compliance. If you need help with complying to these new rules or need assistance with a salary review, schedule a consultation with the HR Connection.
