New Overtime Regulations Mean Big Changes for Some Businesses and Employees

August 25th, 2016 by


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When new federal overtime regulations take effect on December 1, 2016, employers and employees should be ready for the changes.

Most salaried employers (other than lawyers, doctors, and teachers) making up to $913 per week ($47,476 per year, or approximately $27.63 per hour) and working more than 40 hours per week will be eligible to earn time-and-a-half for those extra weekly hours worked, regardless of their job duties. This figure will adjust every three years to reflect national wage rate changes. The previous threshold was only $455 per week ($23,660 per year). This means employers will need to track more of their employees’ hours and adjust pay and schedules to ensure compliance and minimize the risk of problems.

All industries will be affected, but service industry employers and employees in particular will see the effects of this new rule. While restaurant servers and retail clerks have long been entitled to overtime protections regardless of base pay, managers and supervisors have often been exempt. Now, those managers, administrators, and supervisors earning less than $913 per week will become eligible for overtime protection. To comply with the regulations, employers will need to either pay overtime to those employees, raise their salaries to meet the new threshold, limit their hours to 40 per week, or use some combination of the above.

The new rules do not change the job duties that qualify an employee for an exemption from overtime pay. It is, and remains, a violation to call someone a “manager” when they do not perform any management functions simply to avoid overtime pay; job duties, not titles, determine eligibility and exemptions. In general, exempted employees must perform primarily non-manual work, and have actual management or administrative duties, or be a member of a learned or creative profession such as medicine, teaching, law, or the arts. Outside salespersons and skilled computer employees may also qualify for exemptions.

Additionally, paying workers by salary, on a piece rate, or by tips or commissions does not affect their eligibility for overtime, but it may affect how their overtime wage is calculated if they are eligible. The U.S. Department of Labor offers an Overtime Calculator Advisor that takes many special circumstances into consideration, and is available at http://webapps.dol.gov/elaws/otcalculator.htm.

Employers will also need to keep accurate time records and maintain a fixed workweek. The workweek does not need to start at midnight on Sunday or at the beginning of the work day on Monday, but it needs to be a consistent 7-day period that starts and ends at the same time each week. Employers cannot change the workweek to avoid overtime payments, nor can they combine two workweeks and pay overtime only after 80 hours of work in a given two-week period (even if they maintain a biweekly payroll schedule).

The U.S. Department of Labor offers a PDF guide to the 2016 rules, available at https://www.dol.gov/whd/overtime/final2016/SmallBusinessGuide.pdf.

Some states, as well as some collective bargaining agreements, provide for different overtime rules that are more favorable to the employee than federal rules. Your state’s labor or workforce development department likely has Internet and phone guidance to assist you with compliance with laws specific to your jurisdiction.

Advanced preparation and good record keeping will go a long way toward helping employers comply with the new regulations, and toward making sure employees entitled to overtime pay are properly compensated. If you are concerned or confused about how the new regulations will be applied to you or your workforce, contact an attorney well versed in these rules and employment law to discuss your situation.