Confused by all the new overtime rules talk? We have had a number of clients ask questions about this, because let’s face it, it’s not as straightforward as it may seem! On December 1, 2016, the new Fair Labor Standards Act (FLSA) Overtime Regulations come into effect.
The threshold for employees eligible for overtime has been raised from $23,600 to $47,476. This means that any employee that has a salary less than $47,476 requires pay 1.5 times the equivalent of their hourly wage for any hours worked over 40 hours per week.
When do I need to be sure I’ve got this figured out?
The FLSA New Overtime Exemption regulations final rule was determined on May 18, 2016 and comes into effect on December 1, 2016.
Previously, full-time salaried employees who earned more than $23,660 were not eligible for FLSA overtime pay of 1.5 times an equivalent hourly wage.
Now, employees that earn up to $47,476 are required to be paid overtime as of December 1, 2016. An estimated 4.2 million workers will be affected by the new regulations. The new rules do not affect hourly employees as they are eligible for overtime, no matter what.
What do I need to know as an employer?
- Any of your employees that fall under the executive, administrative or professional exemptions that earn up to $47,476 and work more than 40 hours a week will be entitled to 1.5 times the equivalent of their hourly wage for any hours over 40 hours/week. Confused yet? In other words, anyone who makes less than $47,476 annually and works 40+ hours a week will have to be paid time-and-a-half for anything over 40 hours.
- The new regulations account for incentives such as guaranteed bonuses and commissions in calculating up to 10% of an employee’s salary, provided that these payments are made on a quarterly or more frequent basis.
- The regulations continue to contain a special rule for “highly compensated” employees who are paid total annual compensation of $134,004 or more, raised from $100,000 previously.
In an in-depth article in the NY Times, Small Businesses Worry About Adjusting for Overtime Rules, it is suggested that small companies begin by determining which employees will be affected, and those that frequently work 45-50 hours in that $40K area will need to either have their hours reduced/monitored or salaries bumped so they will be exempt.
Keep in mind that if you are reducing hours, you may need to hire more employees. Given these new regulations, many small businesses may consider hiring more hourly staff to reduce the overtime hours of their existing staff.
- Pay time-and-a-half for overtime worked.
- Limit your workers’ hours to 40 hours per week.
- Increase your employee’s salary to above the threshold, eliminating the need to worry about paying overtime and/or tracking hours.
- If you have employees that have mostly predictable hours, the easiest approach is to do nothing at all. Declare those employees that are below the threshold as non-exempt and monitor or limit their overtime hours.
Moving forward the salary threshold will be updated every 3 years to keep up with inflation, with the first update scheduled for January 1, 2020.