This past May, the Obama administration issued final rules requiring employers to make overtime payments (time-and-a-half) to perhaps millions of workers not currently eligible. The rules will go into effect on December 1, 2016, giving employers approximately six months from the announcement of the final rules to prepare. The goal of these rules is to update the salary and compensation levels needed for executive, administrative and professional salaried workers to be exempt from overtime pay eligibility. The hourly threshold for overtime payments remains at 40 hours per week.
It should be noted that overtime payment is automatic for those employees who are paid hourly, as opposed to those on salaries, regardless of their actual earnings.
So while these new rules only impact salaried employees, they still have the potential to expand coverage to over four million salaried workers nationwide within the first year of implementation. Here is why: the central component of the new rules is the pay level at which salaried employees are presumed eligible for overtime pay. Under the old rule governing overtime, enacted twelve years ago as the only adjustment to overtime regulation since 1975, only workers making less than $23,660.00 in salary qualified to receive overtime pay when working more than forty (40) hours in a week. Under the new rules, the qualifying salary is increased to $47,476.00 per year, a rather large jump indeed. These rules allow salaried workers, including managers, who earn below the $47,476.00 threshold to collect overtime pay for any time spent working over forty hours. Those workers earning above that amount are exempt.
It is also important to highlight that the new rules, as opposed to the old rules, are set up so that a new dollar amount for overtime eligibility will adjust every three years. This was included to ensure workers’ ability to earn overtime will keep up with inflation.
If you’re an employer, the time to start developing a plan in response to these new regulations is now. Here are some potential options available to employers to manage this change, as proffered by employment experts nationwide:
- Keep those salaries which would qualify for overtime the same while eliminating overtime or reducing it greatly.
- Raise the salaries of salaried employees over the new minimum threshold ($47,476.00), which will allow employers to continue generating unpaid overtime work from now-exempt employees.
- While not very creative, employers may opt to simply keep the salaries the same while paying overtime. While it may seem an easy option, employers will be tasked with tracking employee hours to ensure they’re not abusing the system.
- Keep salaries the same, but hire more employees on an hourly basis. This seemingly goes hand in hand with option one. However, if your type of work involves constantly generating overtime from employees, hiring additional workers to be paid hourly to pick up any potential slack from those employees actively avoiding overtime may be a worthwhile option to explore.
The attorneys at Howland, Hess, Guinan, Torpey, Cassidy & O’Connell, LLP are skilled in employment and business law. If you are interested in creating a strategy on how to handle the changes sure to come with this new rule on overtime pay, call now to arrange for a free consultation at 215-947-6240 or visit us online.
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