On December 1,
new overtime rules take effect.
Is your business ready?
Starting in December, administrative employees making less than the magic number, $47,476 per year, will no longer be exempt from the overtime provisions of the Fair Labor Standards Act. These administrative employees will earn overtime pay if they work more than 40 hours in a week.
Overtime pay is 1.5 times the employee’s hourly pay rate. The change is huge because it more than doubles the threshold for the exemption. Previously, administrative employees making more than $23,660 a year have been exempt from overtime.
Salary alone is not the only factor for determining whether a salaried employee is entitled to overtime or is exempt. There is actually a three part test:
- The employee is paid a salary as opposed to an hourly wage;
- The salary must be at least $47,476 annually for a full time worker to be exempt; and
- The employee’s primary job must be executive, administrative, or professional, e.g., management, exercise of discretion and independent judgment, or work that requires advanced knowledge.
Otherwise, the employee is entitled to overtime pay at time and a half the employee’s hourly equivalent rate for each hour worked beyond a 40 hour work week.
The Department of Labor has identified four options for employers to comply with the new rule:
- Raise salaries to maintain the exemption;
- Keep current salaries, and plan to pay overtime;
- Adjust workloads and schedules so that employees are not working overtime; or
- Adjust wages by converting salaried employees to hourly.
What are businesses doing to prepare?
Raising salaries and paying overtime is simply not financially feasible for many businesses. Employees may negatively view adjustments in workloads and schedules or converting them from salary to hourly pay.
There is another way to comply with the new rule without undertaking additional financial burdens: adopt a workplace policy mandating that non-exempt employees cannot work overtime without prior written approval from a supervisor.
Enforce the policy consistently. This will help the business be able to predict and control labor costs while encouraging healthy work-life balance for employees.
Small businesses may have a tough adjustment period ahead.
Adopting a policy regarding overtime, educating employees about the policy, and enforcing the policy will provide some predictability and enable the business to manage workloads in a way that minimizes financial strain and possible cash flow problems. We can help craft company policies that comply with the new rule while providing the ability to manage overtime.