Think the New Overtime Rules Don’t Apply to You? They Do!

Jul 19 2016

Man surfing Many of our best clients are blissfully unaware of the fact that the expansion of the overtime pay rules DO, in fact, APPLY to their companies. All businesses in the U.S. are subject to these new rules (part of the Fair Labor Standards Act or FLSA) if they have at least 2 employees AND at least one of the following is true: (1) the business generates $500k of annual revenue (aka “money in”) OR (2) operates as part of a Hospital, School, or Government Entity. If that test doesn’t apply, you’re required to look at whether you have employees whose work regularly involves interstate commerce. If so, you are subject to the rule. So, nearly every business is impacted. Now let’s look at what you must do to comply by December 1, 2016…

You Thought Only Companies with >50 Employees Are Impacted, Right?
Wrong! Lots of people mix this up. That rule is for other Federal employment rules, such as the Family Medical Leave Act (FMLA). You’re not alone in getting this confused.

Now that You’re Paying Attention, What Do You Have to Do?
In addition to some other things you’re probably doing (like paying minimum wage), you MUST pay all non-exempt employees at time and one-half for all hours worked over 40. You’re likely already doing that, but the definition of a non-exempt employee just broadened considerably. Here’s a summary to help you figure out whether your job(s) meet the required tests:

Employers must assume an employee’s role is Non-Exempt unless it meets (1) the Salary Basis Test, (2) the Salary Level Test AND (3) a Duties Test, combined below:

Executive—Salary of $913 weekly or $47,892 annually AND

  • Primary duty is managing the enterprise, a department, or division
  • Must direct the work of at least 2 employees
  • Must have authority to hire, fire, advance, promote, etc. 

Administrative—Salary of $913 weekly or $47,892 annually AND

  • Primary duty must be performance of office or non-manual work directly related to the enterprise’s management or general business operation
  • Employee’s primary duty includes the exercise of discretion and independent judgment

Professional—Salary of $913 weekly or $47,892 annually AND

  • Primary duty requires advanced knowledge in a field of science or learning which requires a prolonged course of specialized intellectual instruction

Outside Sales—Salary of $913 weekly or $47,892 annually AND

  • Primary duty is to make sales or obtain orders or contracts for which consideration will be paid by the client or customer
  • Customarily/regularly engaged away from employer’s place of business

Computer Employee—Salary of $913 weekly or $47,892 annually AND

  • Must be a computer systems analyst, programmer, software engineer, or other similarly skilled worker
  • Primary duties must consist of application of systems analysis techniques and procedures, design, or development of computer systems/programs

Highly Compensated Exemption—salary of $134,004 AND

  • Performs office or non-manual work
  • Customarily and regularly performs any one or more of the exempt duties under Executive, Administrative, or Professional (EAP) Exemptions

What Can I Do if My Employees Are Newly Overtime Eligible?
Now that you’ve applied all of the tests, here is what to do if a job is now overtime eligible:

  • Raise Salary
  • Consider a bonus of no more than 10% that is (1) non-discretionary on any basis and (2) paid no less often than monthly
  • Move Exempt Employees to Non-Exempt and Communicate Carefully
  • Reduce Your Full-Time Employees

There are some other, more complex things you can do, but this is a good start. 

Any Other “Highlights”?

Posted Notices: You must display an official FLSA poster outlining FLSA provisions. Many options are available online.

Record keeping: You must keep the following information on file for 3 years 

  • Employee’s full name and social security number
  • Address, including zip code
  • Birth date if younger than 19
  • Sex and occupation
  • Time and day of week when employee’s work week begins
  • Hours worked each day
  • Total hours worked each work week
  • Basis on which employee’s wages are paid
  • Total daily or weekly straight-time earnings
  • Total overtime earnings per work week
  • All additions to or deductions from wages
  • Total wages paid each pay period
  • Date of payment / pay period covered

There are a lot of nuances to these rules and our intent was not to share them all nor to give legal advice or replace the role of your internal or external legal counsel. If you have questions, please consult your employment attorney or give us a call to learn more.

Happy hiring!

Thank you to Nancy Johnson of Gillis Way & Campbell for working with Peoplr on a series of workshops on Practical HR Solutions for Business Owners and Leaders. This blog is an excerpt from one of these sessions and we are grateful to Nancy for her expertise.



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