Word to the Wise: How Will New Overtime Rules Affect Your Business?

9/5/2016 - By Zachary Farrington

The Department of Labor recently published new overtime and worker classification changes to the Fair Labor Standards Act, which will impact more than 4 million workers and their employers.

Under the new ruling, starting Dec. 1, 2016, most salaried workers earning up to $47,476 per year must receive time-and-a-half overtime pay when they work more than 40 hours per week. The previous cut-off for overtime pay was $23,660.

Eligibility by Duty or Salary

Federal employment law provides two ways for most salaried workers to become eligible for overtime.

The first is through a “duties test” that essentially determines whether the workers are professionals, or are executives or administrators exercising some decision-making authority. If so, they are known as “exempt” employees and are generally exempt from overtime eligibility. If they don’t fit into these categories, they are “non-exempt” and are likely eligible for overtime pay.

The second method is via salary level, regardless of duties. This is the method affected by the new regulations. If workers’ salaries are below the cut-off level — even if they fit into the “exempt” category in terms of duties — they must be paid overtime.

Note that certain categories of workers, including teachers, doctors and outside sales reps, are exempt from the new overtime regulation regardless of their salary level.

What to Do

Employer response to these changes will likely play out in a variety of ways. Some companies will do nothing and simply pay their workers more for working overtime. Others may be motivated to limit work hours to avoid paying more, or they may raise salaries above the $47,476 eligibility cut-off.

Here are a few tips to help you prepare for the new overtime regulations:

Examine current pay. Review your employees’ current compensation structure, classification and the rules around exempt and non-exempt status and how this affects overtime eligibility. A solid understanding of actual work duties is critical to this assessment.

Monitor employee hours. Keep a close eye on the number of hours your employees work. Consider using a time and attendance system that tracks worker hours and can alert employees and their supervisors if they are nearing or exceeding a 40-hour workweek. Pay special attention to remote employees and those who work flexible or unusual schedules.

Compare the costs of pay. Does it make sense to limit work hours or increase salaries to avoid overtime pay? Keep in mind that doing so might have an impact on morale. If you decide to make changes in this area, talk to your HR team about any possible legalities involved. And do so based on employees’ roles, not their individual productivity or personality.

Control costs. Reexamine workflows to see if any operational factors might push employees into overtime. Is it in the best interest of the company to have employees working after hours, on weekends or at other times? If not, establish workplace policies that diminish the amount of overtime-eligible work.

What’s Next?

The new regulation will be updated every three years based on national salary averages. Because of the nuances involved in determining how to react to these changes, it’s wise to contact your CPA and legal advisor for advice on next steps.

If you have questions related to your reporting responsibilities under the ACA, or if you need any assistance completing and filing the required forms, please contact: ACA.Help@saltmarshcpa.com