A new overtime rule takes effect on December 1, 2016, and the Department of Labor estimates that over 4 million workers will become entitled to overtime in the first year of the change. If your employees are included in that number, now is the time to begin preparing. Here’s what you need to know.
How to Prepare for the New Overtime Rule
The background. The Fair Labor Standards Act mandates the federal minimum hourly wage and time-and-one-half pay for hours worked beyond 40 in a week. The act exempts certain “white collar” workers and “highly compensated employees” from both the minimum hourly wage and the time-and-one-half rules. These workers are collectively classified based on duties and level of earnings. Though job titles do not determine status, typically, executive, administrative, professional, outside sales, or computer workers fit into the white collar category. Highly compensated employees are subject to a more relaxed duties test and a standard annual salary amount.
What’s changing. The new rule doubles the annual salary level for the white collar exemption from $23,660 to $47,476, or $913 per week. For highly compensated employees, the total annual compensation level required to claim the exemption rises from $100,000 to $134,004. These salary levels will increase every three years, beginning on January 1, 2020.
How to prepare. Some of your employees may move from exempt to non-exempt status. The only way to be sure is to begin tracking hours and documenting job duties. Once you have determined how the new rule will affect your payroll, you’ll have choices to make, including requiring authorization for any overtime, increasing salaries, hiring additional workers, re-assigning duties, and restricting after-hours work-related activities. You may need to update your payroll software as well as your employee handbook and educate your staff about the new requirements.
If you have questions about the impact of the new overtime rule, please contact us at Cisco & Co CPAs. We have suggestions and tips that can help prepare your business.