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New Overtime Rules Change Exemptions, Increase Salary Thresholds
Are You Legal: Find out how changes in national labor laws will impact your employees, especially new overtime rules and exemption changes.
Date Posted: 11/1/2016
Are You Legal?
Find out how changes in national labor laws will impact your employees, especially new overtime rules and exemption changes.
New federal regulations governing overtime are scheduled to take effect Dec. 1. The U.S. Department of Labor has warned that it will aggressively enforce the new rules, but at least one national business organization has asked the agency to delay their implementation.
The new rules have been in the works for months – they were issued in May. The new regulations change the white-collar exemption for overtime and which employees can receive overtime pay. The changes will make 4.2 million workers – now exempt from overtime – nonexempt from overtime rules.
Workers who are exempt from overtime are those who receive a salary and have executive, administrative, or professional job duties. These qualifications do not change with the new regulations.
There is another qualifying factor, however. A worker must be paid more than a salary threshold set by the Department of Labor in overtime rules.
The new regulations increase the salary threshold, making fewer employees exempt from overtime. The salary threshold is being raised from $23,660 per year to $47,476 per year. (In addition, the salary threshold will increase automatically every three years based on wage growth, so more employees will be exempt as the threshold rises.)
Starting Dec. 1, employees who meet the three criteria – essentially white collar workers earning less than $47,476 – must be paid overtime when they work more than 40 hours in a work week. Employers also have to maintain records of the hours of these employees, and not just when they work overtime.
White collar workers may include managers and middle managers, some computer professionals and outside sales reps. (The Department of Labor has a fact sheet to help employers determine the exemption; it is on the agency website at www.dol.gov.)
Businesses have a few choices how they respond to the changes. They can pay the overtime premiums, increase salaries, reduce or eliminate overtime hours, or reduce the amount of pay allocated to base salaries – or a combination.
Because more than four million white-collar workers will become entitled to overtime pay with the increase in the salary threshold, the Labor Department predicts that some will get overtime pay, others will work less hours, and some will get raises so they remain exempt.
How much the new rules will affect a given business will depend on the number of non-exempt employees they have after the salary threshold increases.
Employers will have to compare the cost of overtime pay with the cost of increased salaries in order to decide how to adjust. Raising salaries might be the right option for companies that already pay salaries close to the new threshold. Businesses with workers who earn a lot of overtime might want to raise salaries, too. They should look at the number of overtime hours employees work and figure up the cost. Keeping salaries under the threshold and paying overtime might work, too. Manage overtime by capping the number of hours employees work each week.
In any case, businesses should inform their employees of the new rules, explain how they will impact the company in order to comply with the law, and train workers in timekeeping as appropriate.
Compensatory time (comp time) can be awarded to employees instead of overtime pay in some situations, mainly for exempt workers. However, employers cannot give comp time to meet their overtime obligations.
The National Federation of Independent Businesses (NFIB) asked the Department of Labor in mid-September to delay the new rules until June 1, 2017.
A lot of small businesses will have to reorganize their workforce and implement new systems for tracking hours, record keeping, and reporting, according to NFIB president Juanita Duggan. “They can’t just flip a switch and be in compliance,” she told USA Today.
However, David Weil, administrator of the agency’s wage and hour division, said that businesses already have been given more than six months to prepare, and the Dec. 1 implementation date allowed a sufficient amount of time to get ready.
Weil warned, “The wage and hour division will continue its vigorous enforcement of the law, including the overtime regulations, to ensure that workers take home every penny they have rightfully earned.”
At least a couple of business trade organizations have decried the new rules.
The Association for Convenience & Fuel Retailing has said the new regulations “will be devastating to convenience store owners, their workers and customers."
In addition, the National Retail Federation told the House Small Business Committee that the new rules will result in hiring freezes and layoffs for full-time workers if enacted as planned Dec. 1.
Supporters of the new rules say they will fuel job growth. David French, senior vice president of government relations for the National Retail Federation, called those claims “riddled with partial truths.” Any growth in part-time jobs that result will come at the expense of hours and earnings for full-time workers, he said.