Don’t Ignore the New Overtime Exception Rules or You Could End up Paying a Fortune

December 1, 2016 is just months away and by all accounts not many businesses are evaluating their salaried employees to see if the new overtime exemption rules will affect them. This could be a major mistake. As we mentioned in a previous article, on May 18, 2016, the Department of Labor issued new rules and guidelines for determining when a salaried employee is exempt from receiving overtime compensation. The minimum salary level for overtime was changed from $23,660.00 ($455.00/week) to $47,476.00 ($913.00/week). As a result, there are a number of salaried employees that will be caught in this net and employers need to be ready to determine if those employees will be eligible for overtime compensation.

Employers will need to complete the following basic review:

1. Identify all salaried employees whose annual salaries fall between $23,600.00 and $47,400.00. It is these salaried employees who the change will affect.
2. Confirm that even if they exceed this salary limit, they pass the “standard duties test”. In other words, their job duties must also fall under the recognized exempt categories: executive, administrative, professional, computer technician or outside sales representative. Basically, the rules require some measure of independent judgment and management responsibilities in their day to day activities.
3. Determine if any of the employees with salaries below $47,400.00 are working more than forty hours a week.
4. Finally, you will need to determine what your exposure would be to overtime compensation for each salaried employee who earns under $47,400.00 if they regularly work overtime. It may end up being more economical, both in terms of your exposure to overtime compensation as well as your administrative costs, to increase the individual’s base pay so that they are above the initial salary threshold and, therefore, could be exempt from overtime. However, keep in mind that merely raising someone’s salary above the threshold of $47,400.00 does not automatically mean that individual is exempt from overtime. They still must pass the standard duties test. Also, keep in mind that you can use a bonus or incentive pay to get over the salary limit. But the bonus cannot be more than ten percent (10%) of their salary and must be paid at least quarterly.

Do not let the December deadline creep up on your business without being prepared. The last thing you need is for an employee to file a complaint in June of 2017 and suddenly expose your business to tens of thousands of dollars in overtime compensation.