What!?! That new OVERTIME rule applies to me?

Dana Ball Legal Services

If you have employees then, YES, the new OVERTIME rule applies to you! Only 30 days until December 1, 2016, so you better jump on this.


Here’s the deal on this new rule:

  • You can no longer pay a “salary” to ANY employee who makes less than $47,476 a year;
  • Former salaried employees MUST now clock in and out;
  • Employers MUST keep record of employees work time; and
  • Any hours worked over 40 in a week MUST be paid overtime, time and a half for hourly employees.

Thus, these salaried employees are not considered “exempt” anymore but are now paid by the hour. This law is going to blind side many small businesses and the financial impact will be detrimental to labor costs. Today is the day to face this so you are not one of those caught with overtime violations and penalty fees for non-compliance. Ignorance of the law will not save you!

Follow these steps to protect your business:

  1. Identify those employees who have been paid a salary that is less than $47,476 a year.
  2. Calculate the actual hours these employees work per week. Hopefully these employees have kept a record otherwise, you will have to estimate.
  3. Determine how much these employees will earn yearly when you have to pay them overtime at their current rate of pay. This is important to figure out to ensure your labor costs remain the same. Here are your options to consider:
    • Reclassify each employee from salary to hourly. Decrease the hourly rate to reflect the expected overtime hours, thus keeping your labor costs the same.
    • Reclassify each employee and prohibit them from working overtime. If any employee works overtime without authorization, you still have to pay them overtime. While you will reduce costs, you will lose the extra hours each week these employees worked before above 40 hours.
    • Reclassify each employee without decreasing hourly rates, pay the overtime which essentially gives the employees a raise so your labor costs will go up.

In order to maintain an employee’s “exempt” status, you must pay that employee $47,476 a year AND the employee must meet certain tests regarding their job duties. Job titles do not determine exempt status. There are three main exemptions available: Administrative, Executive and Professional. To qualify for the administrative exemption, the employee’s primary duty must be the performance of office work directly related to the management of the business and the employee has authority to exercise discretion and independent judgment with managing the business. For example, an “Office Manager” may not have discretion to hire and fire employees, so even though the title implies that the job is directly related to the general business operations, without authority to hire and fire, this office manager would not qualify to be a salaried employee.

This is another headache for the Small Business owner as the Department of Labor has not only changed the overtime rule but has also increased the potential penalties if you get it wrong. Consult with an attorney today about your options.

Dana Ball provides timely and affordable (only $100 an hour), legal services to small businesses with less than 50 employees.

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