Have you heard about the new “white collar” overtime rule set forth by the U.S. Department of Labor as part of the Fair Labor Standards Act? If not, chances are it’s going to affect your business and your employees. In a nutshell, here’s what you can expect:
- Minimum salary threshold for overtime eligibility increased from $23,660 to $47,476 annually
- Will go into effect December 1, 2016
- Automatic increases to this threshold will occur every three years
So what does this really mean? It means if you have an employee that makes a salary of less than $47,476 per year and they work more than 40 hours per week, they are eligible and entitled to overtime wages.
We’ve put together what we think are the top 5 most important questions.
1. Must all small businesses follow this new rule?
The answer is technically no, but more than likely. If a business has sales of at least $500,000 annually, the business must follow the new overtime rule. Even if your annual sales are less than $500,000 chances are your employees are still covered under the Fair Labor Standards Act (FLSA).
The FLSA covers employees who regularly engage in interstate commerce or in the production of goods for interstate commerce. These activities could include making out-of-state phone calls, receiving or sending interstate mail or communications (including email), ordering or receiving goods from an out-of-state supplier, or handling credit transactions or performing bookkeeping for such activities.
2. If an employee satisfied the “duties” test to exclude them from this rule, but is making less than the new minimum salary, can they still be considered exempt?
No. In order for an employee to be considered exempt from this rule, they must satisfy both the duties test AND be paid at least the new minimum salary of $47,476.
On the other hand, if the employee satisfies the new minimum salary but does not pass the duties test, (i.e. the employee is supervising only one employee when the test states they must supervise at least two), then they may not be classified as exempt.
3. What is the penalty for no complying with the new overtime rule?
If after December 1, 2016 a business is not complying with the new overtime rule, they will expose themselves to potential investigation by the Department of Labor, as well as private and class action litigation. It is definitely not advisable for any employer to take the risk of not following the new overtime rule.
4. Will new overtime-eligible employees have to record their hours on a daily basis or “punch a time clock”?
No. Overtime-eligible workers are not required to punch a time clock. The FLSA requires that employers keep certain records for each nonexempt worker. That’s so workers can be sure that they get paid the wages that they earn and are owed. Employers have options for accounting for workers’ hours – some of which are very low cost and burden. There is no particular form or order of records required and employers may choose how to record hours worked for overtime-eligible employees.
For employees with a flexible schedule, an employer does not need to require an employee to sign in each time she/he starts and stops work. The employer must keep an accurate record of the number of daily hours worked by the employee, not the specific start and end times. So an employer could allow an employee to provide the total number of hours she/he worked each day, including the number of overtime hours, by the end of each pay period.
5. What if a State has its own overtime laws?
The FLSA provides minimum wage and hour standards and does not prevent a State from establishing its own more protective standards. If a State establishes a more protective rule than the provisions of the FLSA, the higher standard then applies in that State.
For more information, read this report from the Department of Labor: https://www.dol.gov/sites/default/files/overtime-overview.pdf
Acharya, A. (2016, June 28). 9 FAQs About the DOL’s Overtime Rule. Retrieved from http://www.benefitnews.com/opinion/q-a-on-the-flsas-changes-to-overtime-exemptions.
United States Department of Labor. Final Rules: Overtime, Question and Answers. Retrieved from https://www.dol.gov/whd/overtime/final2016/faq.htm#9.
If you would like to talk with someone personally about the DOL’s Overtime Rule, we recommend contacting Tyler O’Brien with ADP. His contact information is below: