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Hiring & Payroll, Payroll

New Overtime Rules: How Do They Affect Your Business?

New Overtime Rules

Many people are familiar with the concept of overtime pay. Also known as “time-and-a-half,” this is a practice where employers have to pay their employees an extra bonus wage for any hours worked above the limit of 40 hours per week. However, in recent years there has been some uncertainty and activism related to which employees are eligible for or exempt from overtime pay, with labor unions and employee rights activists arguing that employers should have to pay overtime to a larger group of eligible employees. As a result, the federal Department of Labor (DOL) has issued a new ruling that is going into effect in December 2016 that changes how employers can categorize employees as exempt or non-exempt for overtime pay.

This ruling will increase the current exempt employee salary amount threshold from $23,000 to $47,476 annually. This means that employees who earn up to $47,476 in annual salary, in general, will be eligible for overtime pay, unless they meet a few key tests based on the type of work that they do, as described in the “Duties Tests” of the DOL regulations.

In general, this ruling is good news for employees, since it is making millions of additional people eligible for overtime pay. It can be a potential challenge for employers, if you have employees who have currently been working overtime without additional compensation – as a result of this Department of Labor ruling, you might need to start paying more money to your employees, or consider changing your labor practices or hiring more employees in order to comply with the new regulations.

Here are a few of the big implications of this new change in overtime rules, and what it might mean for your business:


Higher Minimum Salary to be Exempt from Overtime

The new Department of Labor regulation is not requiring you to change your employees’ salaries or hours; it is just saying that if you have employees who are currently working more than 40 hours per week, these employees are generally entitled to additional overtime pay – as long as their salary is less than $913 per week or $47,476 per year.

If your employees are already working 40 hours per week (with no overtime), then your business is unlikely to be affected by the new rules. But if you have employees who make, for example, $35,000 per year, and you have been expecting them to work more than 40 hours per week but without additional “time-and-a-half” overtime pay, you might no longer be able to do this under the new rules.

The new rules are expanding the pool of employees who are eligible to receive overtime pay. Before this ruling, overtime pay was generally available only to employees that earned up to $23,000 per year. But now, employees earning up to $47,476 per year are also eligible for overtime. If their employers choose to ask them to work longer hours than a typical full-time (40 hours per week) schedule, these employees, under the law, now have the right to expect additional pay above and beyond their usual hourly wage.


Which Jobs Do Not Qualify for Overtime?

Some employees within the $47,476 annual compensation range are still exempt from overtime pay, even with the higher salary threshold. It depends on the type of work that the employee performs on the job. As described in the new Department of Labor Compliance guide, to be exempt from overtime, in addition to earning less than $47,476, “the employee’s job duties must primarily involve those associated with exempt executive, administrative, professional, outside sales, or computer employees.”
For example, if an employee has the authority to hire or fire other employees, or if the employee directs the work of at least two or more other full time employees, then the employee is exempt from overtime according to the “Executive exemption” – even if the employee earns less than the $47,476 salary limit.

There are also special rules and exemptions related to employee job duties in areas such as administrative, professional, outside sales and computer occupations. Be sure to read the details to see if your employees qualify for overtime based on the combination of their salary and job responsibilities.


How This Affects Your Business

If you have employees who only work 40 hours a week or less, then this new ruling will not affect your business. But if you currently have employees who are working more than 40 hours per week without being paid additional compensation, you might need to make some changes to the way your business operates. For example, you might want to consider paying extra money to your employees, or rearranging employee schedules so that no one works more than 40 hours a week, or perhaps hiring additional help to cover the shifts. Depending on your operations, it might be easier and more efficient to hire more help on a part-time or seasonal basis, rather than paying extra labor costs per extra hour of overtime.

These new regulations aren’t necessarily going to “cost” your business additional money, but they might require you to make some changes in how you manage your employees and deal with overall staffing levels. It doesn’t have to be a bad thing; ideally, this might be an opportunity to make some positive changes at your business, improve the efficiency of your business operations and reward your best employees for doing great work.


To get additional help or guidance for the new overtime rules and how your business might need to change your operations to comply with them, please contact the U.S. Department of Labor Wage and Hour Division at 1-886-487-9243, or visit www.dol.gov/whd.