What You Need to Know About Proposed Overtime Rule Changes
New rules governing overtime pay were set to go into effect on December 1, 2016, until an injunction put the changes on hold. That injunction is being appealed by the Department of Justice on behalf of the Department of Labor.
At this point, nobody knows for sure if or when the new rules will be implemented, but business owners still need to be aware of them. Based on our own conversations and experiences, there seems to be quite a bit of confusion in the small business community.
A Summary of the New Overtime Rules
The idea behind the updates to overtime regulations is to simplify the rules for both employees and employers and to strengthen overtime protections for salaries workers who are already entitled to overtime.
The biggest change is the increase in the salary threshold that indicates overtime eligibility. The threshold would increase from $455 per week to $913 per week or $47,476 per year. This amount will automatically update every three years to reflect wage growth.
However, it’s important to realize that the exemptions have not changed. The new rule changes don’t affect the duties test for executive, administrative and professional (EAP) workers who qualify for so-called “white collar” exemptions. Exempt employees must still meet specific criteria with regards to compensation and job responsibilities.
Misconceptions About How to Comply
Most business owners who we’ve spoken with assume that if you simply pay your employees at least $47,476 per year, those employees will not be entitled to overtime. That’s not true.
Once an employee reaches that threshold, you then must determine if they qualify for white collar exemptions based on the type of work they do. If an employee doesn’t perform certain functions, they could have a salary of $200,000 and you would still have to pay them overtime.
For example, suppose you have an inside salesperson who sits in the office all day and makes sales calls. They don’t manage anybody, and they don’t have any assistants. Between salary and commission, they earn $150,000 per year. Technically, because they don’t manage anybody, they would be entitled to overtime.
Another common misconception is the fact that overtime pay is awarded if the number of hours worked in a week exceeds 40. For example, suppose someone puts in 50 hours in a week, but that includes a vacation day. That means eight of those hours are vacation hours. As a result, the employee is only entitled to two hours of overtime because they worked 42 hours, not 50. Overtime is not applied to paid time off.
There is also the issue of the mobile workforce. Most people use mobile devices outside of the workplace to send and receive emails, make phone calls, and review and edit documents. If you have nonexempt employees who work remotely and outside of normal business hours, you should consider implementing a mobile device usage policy and a system for monitoring and measuring work activity.
The Consequences of Getting Overtime Wrong
If the Department of Labor performs an audit and finds that you’ve been handling overtime incorrectly, you could be on the hook for years of back pay for multiple employees. You could be sued by these employees and subject to penalties.
If you offer a retirement plan or profit-sharing plan, these accounts could have been underfunded due to overtime mistakes. Not only will you have to make up the difference, but you’ll have to deal with the administrative headache of making the corrections.
Here’s the bottom line. Overtime exemptions are very complex. Even if someone is very highly paid, they might be required to receive overtime depending on their actual duties. There are nuances to these exemptions that aren’t obvious to the average person.
Make sure you consult with an expert in this area, such as a labor attorney or human resources professional. Monitor the status of the appeals and injunctions that will determine if the new overtime rules will be implemented and when. Even if you discover that new rules won’t affect your company, it’s important to understand the rules to prevent issues from popping up in the future.