A new rule governing how overtime for employees is administered is on the horizon and will affect millions of workers and thousands of companies nationwide. In late May of this year, President Barack Obama and Secretary of Labor Thomas Perez announced a final ruling that will dramatically increase the number of employees that are eligible to be paid for overtime by their employers.
Starting December 1, the minimum salary threshold for employees will increase from $23,660 annually to $47,476. Previously, an employee making $23,660 per year could be asked by an employer to work more than 40 hours a week without overtime compensation. Other items of note include:
- The salary threshold for Highly Compensated Employees (HCE) was raised as well from $100,000 to $134,000 per year. This is the threshold above which most workers are exempt from overtime requirements.
- The salary threshold will automatically update every three years, beginning January 1, 2020. The next update will move the minimum salary to $51,168.
- 10 percent of the salary threshold for non-HCE employees can be made up of non-discretionary bonuses, incentive pay, or commissions.
How Will the New Rules Affect Employers?
The new rules will immediately affect how companies classify employees and, ultimately, how they pay them. Now, closer attention has to be paid to how employees track time and the specific activities they take part in during a work day. Errors in classifying employees and compensation can lead to extra time spent correcting oversights. The alternative could be a potential lawsuit.
How Can You Prepare for the New Overtime Rules?
- Learn the rules: It’s important to fully understand the rules and how they apply to your personal situation.
- Evaluate the status of all employees: Review how all employees are classified, their tasks, and how many hours they currently work.
- Review a variety of scenarios: Depending on the situation, there are a number of strategies to employ. One may be to increase an employee’s salary to the threshold ($47,476) to avoid paying overtime. Another option is to convert salary employees to hourly employees. You may also consider tighter time tracking policies and ensuring that employees work 40 hours a week or less.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.