As you have probably heard, the Department of Labor (DOL) has recently passed a law that will affect overtime exemptions for salaried employees all across the country. Most of the articles you’ll find related to the subject are pretty difficult to understand - full of jargon you need a political science degree to understand and typically about 500 words longer than necessary. My goal in this blog is to simplify what the law means, explain how it will effect your company, and clarify what changes you will need to implement in order to stay in compliance with the new rules.
A Summary of the Law
One of the reasons the original overtime exemption law was put into place was to prevent people from working 60 hour work weeks, while only getting paid for 40. This idea dates back to 1938 with the birth of the Fair Labor Standards Act (FLSA), which put into effect minimum wage criteria, child labor laws, record keeping policies, and overtime standards, among other things. Essentially the overtime laws sort employees into two categories: exempt and nonexempt. An exempt employee is not required to be paid overtime for any hours worked over 40 hours in a workweek. A nonexempt employee is required to be paid overtime for any hours worked over 40 hours in a workweek. For more details on the differences between exempt and nonexempt, click here.
The only thing that has been affected by the recent changes is the base salary threshold for exempt employees.
So What Does this Mean?
As of now, employees making $455 per week ($23,660 annually) or higher are exempt from being paid overtime. This number was decided on in 2004, so it’s a little outdated. Effective December 1st, 2016, this number increases to $913 per week ($47,476). In order to stay up to date with inflation, this number will be adjusted every three years going forward.
Great, So Again, What Does this Mean?
In order to avoid penalties, you (the employer) need to make sure all employees that makes less than $913 per week are compensated for any time they work past the standard 40 hours. You have two options to achieve this: Give a raise to employees whose salary is close to, but doesn’t quite meet, that number, or move nonexempt employees to hourly. With the latter option you can choose to pay the overtime premium of time-and-a-half for all hours worked over 40 in a workweek, or reduce their hours so they aren’t surpassing that number. Your method of tracking employee hours can vary, just so long as they’re being tracked accurately.
This is just an introduction to the law, because of course there are exemptions and complications. For example, if you have an employee that makes $46,000 per year, but receives quarterly bonuses that put them over that threshold, than they would still be considered exempt. It is also possible to keep employees salary, so long as you track their hours and compensate them for overtime. For an in depth view into the details of these changes, and a chance to ask any questions you might have, sign up for our Webinar “What the DOL Proposed Overtime Rules Mean For You” below!