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CALM DOWN! What You Need To Do About The Overtime Law Change

The anticipation is over! The law regarding overtime pay and employee status is here. No more speculation, proposed terms, etc. TIME FOR ACTION!

So as a small or medium size business, what are you going to do? Just calm down, don’t get overwhelmed, and take it step by step. All employers have till December 1, 2016 to fully comply with the changes. First, we will discuss what the law entails. Then, we will discuss how it might affect your business and the important steps you need to take.

The Final Overtime Ruling

The Department of Labor’s final overtime ruling explains the law in detail including how many people are anticipated to be affected. Just worry about you and your business!

This is what the law is saying:

  1. All employees must meet both the new salary threshold AND the “duties test” to be classified as exempt.
    1. The “duties test” has not changed
    2. Standard salary threshold is now $913 a week, or $47,476 a year
    3. Highly Compensated Employees making $134,004 a year or over will not be eligible for overtime
      1. This can mean in some circumstances overtime pay is provided to those between $47,476 and $134,004 a year based on the “duties” test
    4. Non-discretionary bonuses, incentive payments, and commissions to non-highly compensated employees will be allowed to account for up to 10% of the salary threshold as long as they are made at least quarterly.
    5. Every three (3) years the law will be evaluated and the threshold will be updated.

Who is not affected by the law change?

Outside sales, doctors, lawyers, and teachers.

How will this affect your business?

Some businesses will not be affected at all, while others may have their hands full. Again, just worry about you! After understanding the new law, you must evaluate your business and its employees.

Do this first:

  1. Look at current salary levels and job duties
  2. Evaluate each job based on both the new thresholds and duties (remember the duties did not change)
  3. Determine who qualifies for changes
    • These are your employees who currently meet the job duty requirements for exempt status, but do not currently meet the salary threshold OR
    • These are your employees who have been misclassified based on reevaluation and should have not been exempt in the first place
      • If this is the case, and both threshold and duties are not met, keeping everything the same will entitle this person to a status change immediately to avoid litigation

Next, evaluate each job that qualifies for changes to help you make decisions:

  1. If duties and salary remain the same (exempt duties but paid under the threshold), how often does this job require a work week over 40hrs?
    • If not many times, it may be best to leave it alone and pay overtime when needed
  2. If duties and salary remain the same, will it cost more to pay overtime than to increase salary?
    • If duties remain the same, do you have the means to increase salary?
      • If yes to both, it may be best to increase the salary
    • If duties change and salary remains the same, will operations be negatively affected if extra duties are placed on other employees to avoid overtime?
      • If this is a big yes, then a salary increase may be in order

Other things to think about

Once you have a clear understanding of who in your company will be affected, you may need to evaluate other company policies. PTO and other benefits may be affected if offered differently to hourly, salaried, exempt, or non-exempt employees.

When evaluating your options, please keep these in mind. A full plan must be in place before implementing change to avoid major issues and possible increase in turnover.

Make a decision and communicate changes

After weighing all your options, make a clear plan for all changes. The best way to manage this change is through proper communication with all involved. This means not only the affected employee, but their manager and team members.

Final thoughts

In short, the purpose of this law change is to make sure employees are classified properly and paid fairly for the work they do. Yes, it creates headaches for all affected. What you need to worry about is conducting an evaluation of your business in order to make the best decisions for you while remaining compliant.