Know the Steps To Take Before Dec. 1st

Employers across the nation will be impacted by changes recently made to federal overtime pay regulations. The revisions that the Department of Labor made on May 18, 2016 will not go into effect until December 1, 2016, but companies will need to begin planning now so that they are fully prepared when that date arrives.

The Overtime Change

Most full time employees work forty hour weeks, whether they are paid hourly or by salary. They can get paid overtime if the number of hours that they work per week exceeds forty. In order to avoid paying overtime, employers have been able to claim what has been known as an administrative exemption. The specifications that distinguished those workers who were exempt from having to be paid mandatory overtime were straightforward, and included:

  • Having a non-manual labor or office work job whose primary responsibilities contribute to either management of the business or general business operations.
  • Being a salaried employee rather than an employee paid on an hourly basis.
  • Having job duties that require both discretion and the exercise of judgment.
  • Earning a specifically defined minimum weekly salary.

The changes made on May 18th leave all of these requirements in place, but make dramatic adjustments in their specifics. The changes include:

  • Shifting the specifically defined minimum weekly salary from $455 per week to $913 per week.
  • Allowing employers to include incentive payments, bonuses and commissions in calculating the employee’s weekly salary and qualification for exempt status. However, these payments can only be used to account for a maximum of 10 percent of the minimum salary requirement.
  • Building in automatic adjustments every three years to the minimum salary requirement.

The effect of these changes is profound: where the previous specifications meant that employers were only required to pay overtime to 7 percent of salaried employees, that now shifts the proportion to 35 percent.

The Impact on Employers

There is no doubt that this change is going to require many employers to pay salaried workers overtime pay for the hours that they work beyond the normal work week, and if your business is among them then one way or another your labor and payroll expenses are going to increase.

This is because you are either going to have to begin paying overtime to those who you have not previously needed to pay or you are going to have to increase salaries in order to exempt employees from receiving mandatory overtime. The sooner you determine your best course of action, the better.

Steps to Take

In order to be ready on December 1, you need to take several steps. These include:

  • Taking a good look at whether you will be affected. This means understanding how many of your employees would be impacted based both upon what they are being paid and how many hours they actually work per week.
  • For those employees that will be newly entitled to mandatory overtime, determine whether your best course of action will be to pay the overtime or to increase their salary enough so that they remain exempt.
  • Whatever the answer in the short term, you may also want to give consideration to whether you want to maintain your staffing as it is based upon the new regulations or make adjustments to how many full time employees you have.

    In planning ahead, you need to keep in mind that any increase that you have made to employee salaries in order to maintain their status as an exempt employee will likely need to be made every three years based upon the automatic adjustment that will be made to the minimum weekly salary requirement.

Depending upon the size of your business and how many employees will be impacted by the new regulations, this can represent a considerable amount of detailed calculation and strategizing. If you need assistance, contact our office to go over your current payroll and come up with the best answer for you.

If you have questions about your small business payroll , call us at  913-712-9336 to discuss your situation.