New Overtime Rules Set to Affect Many Small Businesses

Overtime protections were first put into place by the Fair Labor Standards Act of 1938, and established the general standard that workers be paid time-and-a-half for any hours worked over 40 hours in a week.  In general, all hourly employees are guaranteed overtime, and salaried employees are presumed to have the same guarantee unless they both: (1) make more than a salary threshold set by the Department of Labor, and (2) pass a test demonstrating that they primarily perform executive, administrative, or professional duties. 

A limited number of occupations are not eligible for overtime pay (including teachers, doctors, and lawyers) or are subject to special provisions. But, in May of 2014, President Obama signed a memo requesting the Department of Labor to examine and update federal overtime regulations. They did. And, they have issued a new rule which will have a substantial effect on many small businesses throughout the country. 

The final rule, which takes effect on December 1, 2016, doubles the salary threshold—from $23,660 to $47,476 per year—under which most salaried workers are guaranteed overtime (hourly workers are generally guaranteed overtime pay regardless of their earnings level).  Additionally, this new level will be automatically updated every three years to ensure that workers continue to earn the pay they deserve. 

Highlights of the new regulation, which all small businesses should be aware of include:

- it raises the salary threshold at which white-collar workers are exempt from overtime pay from $23,660 to $47,476.

- The Labor Department estimates an additional 4.2 million executive, administrative and professional workers who earn above the old threshold but below the new one will be entitled to time-and-a-half wages for each hour they work beyond 40 a week.

- both salaried and hourly workers eligible for overtime pay if they fall under the threshold, unless they meet very specific requirements which classify them as an executive, administrative, professional or outside sales employee.

- it is anticipated that there may be an increase in the conversion of salaried employees to hourly employees in order to enable employers to track overtime hours more easily.

So what should you do if you’re an employer?

-Learn about the new rules. The White House has a nice summary of the new overtime rules here.

-talk with an employment lawyer about how you may be affected with your current employees and determine what may need to be done in order to remain compliant.

Michael F. Brennan is an attorney at the Virtual Attorney™ a virtual law office helping clients in Illinois, Wisconsin, and Minnesota with estate planning and small business legal needs. He can be reached atmichael.brennan@mfblegal.com with questions or comments, or check out his website atwww.thevirtualattorney.com.

The information contained herein is intended for informational purposes only and is not legal advice, nor is it intended to create an attorney-client relationship. For specific legal advice regarding a specific legal issue please contact me or another attorney for assistance.