Are you prepared for overtime regulations?

published in The Link | August 24, 2016


By Kathy Neal

On December 1, 2016, the U.S. Department of Labor’s new Fair Labor Standards Act overtime regulations will take effect. Millions of employees who are currently exempt will, for the first time, earn overtime for any hours worked in excess of 40 during a work week. Employers should be taking steps now to comply with the new regulations.

Previously, the minimum salary level to qualify for the executive, administrative or professional exemptions was $455 weekly ($23,600 annually). Under the new regulations, an executive, administrative or professional employee must earn a salary of at least $913 weekly ($47,476 annually) or they will be entitled to overtime pay. There is another significant change concerning the salary figures. Every three years the minimum weekly and annual salary amounts will be automatically “adjusted” – that means increased – to track general wage increases around the country.

The Department of Labor conservatively estimates that 4.2 million employees who are now exempt will be entitled to overtime after December 1. For Oklahoma, it is estimated that 50,000 employees will be affected.

What should an employer do now to make sure it complies with the new regulations?

  • Identify employees who are now classified as exempt but who make less than $47,476 annually. These are the employees who will no longer be considered exempt and who will be entitled to overtime pay for hours in excess of 40 during a work week.
  • For the exempt employees making less than $47,476 annually, ascertain how many hours they work on the average per work week. Make sure you include hidden overtime costs, such as wait time, travel time, and on-call time.
  • Analyze the cost to raise the employee to the new thresh hold level as compared to paying overtime.
  • Review the employee’s job description to determine whether duties that result in overtime can be eliminated or assigned to others so that overtime costs can be minimized. Can the job be performed by two part-time employees?
  • Consider how compliance with the new regulations will impact your workplace. If multiple employees perform the same job function, will variations in salary mean that some of them are exempt and some non-exempt? Will you need to changes your policies? Will any benefits be affected?
  • Consider how you will monitor the hours of the now non-exempt employee? Is your existing time-keeping system sufficient? Will you need to provide training to the exempt employee on how to track time?
  • Consider how you communicate the changes to affected employees. You should expect a morale issue as the initial reaction by some employees will be to feel like they have been demoted. Expect resistance from employees who have never had to track their time but are now non-exempt.
  • Make sure that you have written restrictions on when an employee may work overtime (most companies only allow overtime when it has been approved in advance) and make sure that you enforce these restrictions.
  • Resist the temptation to rely upon independent contractors who are simply employees in disguise. You cannot simply convert an employee to an independent contractor and think you’ll get away with it in today’s world.

While the new regulations may seem overwhelming, preparation can ease the pain and you have time to make your analyses before December 1. On the bright side, the new regulations give you the perfect opportunity to fix employees who were misclassified as exempt without calling attention to them.

The LINK is a publication of the Tulsa Small Business Connection.