New Overtime Regs: How To Avoid Increased Labor Costs

By: Jessica Brown Wilson

In a stunning development sure to frighten employers, federal overtime regulations were overhauled this week.   The result: starting December 1, 2016, to be exempt from overtime, employees must earn at least $47,476 per year.

That’s right.  All employees currently classified as “exempt” (i.e., not entitled to overtime), and paid a salary between $23,660 and $47,475, are now entitled to overtime.

Let that sink in a bit.

Person, Human, Girl, Child, Eyes, Face

Those analysts who pound out 60 hours a week at $45,000 a year?  Under the new rules they are entitled to overtime.  So, 20 of those 60 hours would be paid at time and a half, making their annual compensation $77,451.92.

Takes your breath away, right?

And rest-assured that employees will be well-versed in their right to be paid more thanks to the media flogging of this story.  The bury-your-head-like-a-flamingo act won’t work this time.   Avoiding this new requirement will be an invitation for the U.S. Department of Labor to pay you a visit – not for a cup of tea, but for an audit and investigation.

Worse still — you could be inviting a costly lawsuit.

Here is an overview of the new regulations:

  • Sets the minimum salary level for FLSA White Collar Exemptions (Executive, Administrative, and Professional) at $913 per week ($47,476 annualized) – up from the current $455 per week ($23,660 annualized)
  • Raises Highly Compensated Exemption to $134,004. This was raised from $100,000.
  • Creates a mechanism for updating salary and compensation levels every three years to ensure that the regulations are staying up with economic realities.
  • Updates the salary basis test, so that nondiscretionary bonuses and incentive payments (including commissions) can satisfy up to 10% of the new salary level.
  • Applies specific new rules apply to Non-Profits and Higher Education.

What do I do now?

Don’t panic!

Between now and December 1, 2016, employers should be planning for this change.  Right now you should:

  1. Review all of your employees who are classified as exempt, and determine the basis of the exemption.
  2. For all employees who are currently classified as exempt and earn a salary between $23,660 and $47,476, flag them. You will need to make changes with respect to how you pay these employees.
  3. Establish a time-keeping system so that by December 1, 2016, you are tracking the hours all of your employees, who are earning less than $48,000. Okay, the real threshold is $47,476, but let’s be safe.
  4. Don’t panic.

Here are some options to help contain labor costs:

  • Convert salaried exempt employees currently earning $23,660-$47,476 to hourly employees. Create a policy that does not permit overtime unless pre-approved by management.
  • If limiting work to hours to 40 a week is impossible, instead of creating an hourly wage that corresponds to their current salary, you can trim the hourly rate, and plan for an allotted amount of overtime.
  • Convert salaried employees to hourly, and hire more of them, and enforce a strict no overtime policy.
  • Raise salaries, so that they are above the threshold to receive overtime. This may make sense for employees currently earning a salary of $40,000 – $47,476.

Takeaway:  These are big changes, but with proper planning and some guidance, you can manage them.  Get on top of the situation now, and create a plan that works for your business.

By: Jessica Brown Wilson

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Richard Cohen

Richard B. Cohen is a partner in the New York City office of FisherBroyles, LLP, a national law firm. Richard Cohen has litigated and arbitrated complex corporate, commercial and employment disputes for more than 35 years, and is a trusted advisor to business owners and in-house counsel both in the United States and internationally. His clients have included Fortune 100 companies, domestic and foreign commercial and investment banks, Pacific-rim corporations and real estate development companies, as well as start-up businesses throughout the United States. Email Richard at [email protected]