How to Manage Overtime Under the New FLSA Rules
Special Note: On the evening of November 22, a federal judge issued a temporary injunction on the overtime rule. Although the information on the rule, as described below, is correct, it will not go into effect on December 1 unless the judge lifts the injunction or the appellate division overrules him. We will have more information as it becomes available.
Do all your employees know whether they are exempt or nonexempt? Do you know? Earlier this year, the government changed the wage threshold, effective Dec. 1. This is one of the most important Department of Labor changes in decades, and the basics are outlined in a DOL FAQ list. In brief, these rules raise the salary threshold for overtime pay to $47,476 per year — so the DOL predicts that more than 4.2 million workers will get overtime protections or see a raise in salary above the threshold so they fall into the exempt threshold.
The big point: For workers affected by the rule, extra work means extra pay. The threshold will be updated every three years.
The DOL points out that those folks who've been working extra hours and not seeing a dime in overtime pay will benefit.
One of the key challenges for employers will be making sure employees who now fall into the nonexempt category do not work overtime — unless it's approved by management. And the penalties for misclassification can be severe.
To be considered exempt from overtime, employees must generally be paid on a salary basis at least $913 per week ($47,476 a year) and hold an executive or administrative position.
A common misunderstanding of overtime rules is the belief that if you have salaried employees, you don't have to pay overtime. Remember, deciding who is entitled to overtime is a decision based on income and job responsibilities, not at your discretion based on payroll needs.
How you may be affected
There will likely be no status change for any of your employees who have already been earning $47,476 or more.
There will likely be no status change for any of your employees who have been earning less than $47,476 and are currently classified as nonexempt. That is, they have been entitled to overtime all along.
Here's where you may see a change: those employees who have been earning less than $47,476 and have been classified as exempt. They will likely now be entitled to overtime, even though they may not be aware of it themselves. Even if the overtime is inadvertent and not authorized by management, the company may still have to pay it.
The first thing you need to do is communicate the new rules to your staff, especially for employees who are now nonexempt. You do have some choices in how to handle the new rules.
- Limit employees from working overtime, to avoid new costs of paying for that overtime.
- Reduce base hourly wages per employee to account for the overtime you'll have to pay, ensuring that your overall annual compensation stays about where it is now.
- You may want to reconsider flexibility in employees' schedules. For example, let's say that currently you allow employees to work 50 hours this week, 35 hours next week and 40 hours the following week, trusting they'll get the job done without scrutinizing hours. Under the new rule, that will probably be much harder to permit, since those hours over 40 will now cost you more. You can't average over a month, for example, to bypass the 40-hour rule.
- If an employee is pretty close to the $47,476 threshold and/or works significant amounts of overtime, you may want to raise his or her salary to keep the work exempt. (Assuming, of course, the employee meets other guidelines for being exempt.)
These are just the basics. Give us a call so we can help you with the details and see how the rules may affect your particular situation.