The Clock Is Ticking: Get Up to Speed on New Overtime Rules and How They Affect Your Business

Oct 11, 2016

The Clock Is Ticking

If you own a small business, pay attention! A new overtime regulation will go into effect December 1, 2016, and could affect your employees and impact your business.

The Department of Labor has updated rules on the Fair Labor Standards Act (FLSA) overtime standards. In 2014, President Barack Obama directed the Department of Labor to update the regulations that specify which white-collar employees are covered by the minimum wage and overtime standards, and in May 2016 the new standards were published. According to the Department of Labor, the changes will extend overtime pay protections to over 4 million workers within the first year of implementation.

With the new standards, compensation requirements for executive, administrative, professional, outside sales, and computer employees to be exempt will nearly double, rising from $23,660 annually to $47,476 annually. Additionally, highly compensated employees will also see an annual compensation requirement boost, rising from $100,000 to $134,004 per year. Beginning in 2020, future updates to those thresholds will occur every 3 years. It is important to note that only the compensation threshold has been modified. To be exempt from federal minimum wage and overtime, salaried employees must meet two requirements under FLSA: a compensation test and a duties test. The new standards will not affect the duties test requirement.

Although the update will not have a tremendous impact on the economy as a whole—probably affecting only 10 percent of the workforce—it will affect the service, hospitality, and retail industries the most significantly. Nearly doubling the salary minimum is a long-overdue regulation update in the eyes of many workers; however, it is a challenging task for employers with a large number of workers who currently earn less than the new standard, and there has already been a significant backlash from employers.

On September 20, 2016, Texas was 1 of 21 states that filed suit against the Department of Labor to challenge the updates, arguing that the Department of Labor exceeded its authority by nearly doubling the salary threshold, which will force a majority of small businesses, as well as local governments, to unfairly increase their employment costs to meet the new standards, cut services, or lay off employees.

What does this mean for your business?

The Department of Labor has options of either convincing the court not to postpone the implementation of the rule, or it can negotiate an agreement with the states and postpone the December 1 implementation date. Since it is unlikely that the court will hold a hearing prior to December 1, businesses need to be ready to comply with the new overtime standards. Specifically, businesses need to be prepared for exempt salaried employees who are at or below the $47,476 threshold to be reclassified as nonexempt and therefore be subject to overtime pay in addition to other FLSA protections.

Between now and December, your business needs to prepare for the new standards. Difficult decisions need to be made that will force you to consider where to draw the line on company time. For employees who travel, will you count the hours they spend at the airport and flying? You also need to consider your sales people. Will you count the hours they spend at networking events?

Additionally, difficult conversations with employees ‚Äčare necessary. Communication is crucial for understanding. Consider their viewpoint upon learning about the new regulation. Employers need to sit down with employees and discuss the new overtime standards, as well as changing company expectations. Although the conversations can be awkward, employees need to be reminded that their work is valued. You can position becoming a nonexempt employee as gaining structure, not as losing flexibility. If your employees have been working over 40 hours per week, you can explain how now they will have a better work/life balance. Regardless of opinions about the new overtime law or how your business will confront the changes, you need to be proactive in educating your employees about the new standards.

ZERORISK helps organizations build great cultures by identifying, developing, and retaining top talent. The ZERORISK Hiring System blends a revolutionary behavioral science with state-of-the-art technology to reduce unwanted turnover and improve employee performance. For more information contact us at (800) 827-5991.

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