Who gets overtime pay? The rules are about to change

Employers, there’s something you should know: The U.S. Department of Labor (DOL) is likely to soon pass changes to the Federal Labor Standards Act (FLSA) that will affect more than one million workers in terms of overtime pay.

The proposed changes would raise the salary threshold for employees exempt from overtime pay from $455 per week to $679, bringing the qualifying salary level to $35,308 per year.

However, knowing whether your employees are exempt from overtime pay isn’t as simple as these parameters might suggest. Here’s what you need to know.

Determine which employees are exempt

Several classes of employees are exempt from overtime pay. The definition is complicated, so it’s important to know the law. Employers can run into trouble if they inadvertently designate non-exempt employees as exempt. Incorrect designations can also cost your business time, energy and money from penalties and attorneys’ fees.

There are two main questions to determine if your employees are exempt or non-exempt:

1. What is the employee’s salary?
2. What are the employee’s duties?

It’s commonly understood that all hourly workers must be paid overtime if they work more than 40 hours per week. Many companies assume that salaried employees are not entitled to overtime. In fact, the current regulations require that any employee with a weekly salary below $455 ($23,660 annually) is due overtime. If an employee is above this threshold, an employer has to review the employee’s specific job duties to determine whether an exemption applies.

Perform a duties test

To perform a duties test, ask a simple question: Does your employee make independent, authoritative decisions about your business? If not, the employee is most likely non-exempt and must be paid overtime (time and a half) for all hours worked above 40 hours in any week.

Employees with discretion and authority over critical aspects of the business are typically exempt and not eligible for overtime. Certain job categories are exempt, including executive, administrative and professional positions, or “white collar” jobs. This includes outside sales roles and computer employees. Professional positions cover a wide range of people with advanced or specialized knowledge, from lawyers and doctors to writers and musicians.

Prepare for changes to the law

There are five things you can do to prepare for these forthcoming changes:

1. Audit payroll records and identify which employees may be affected by the new rule.

Decide whether to apply raises or time-tracking systems for employees close to the threshold.

2. Review all job descriptions and duties to determine whether your business currently has any misclassified employees.

This is your company’s opportunity to correct any issues before liability compounds.

3. Implement a timekeeping system for all non-exempt employees and consider requiring all employees to track time.

Certain states already have time-keeping requirements. Make sure employees certify their tracked time to avoid claims of untracked time.

4. Update employee handbook or policies with an overtime policy that manages costs and reduces liability.

You can limit financial risk by requiring supervisor approval before working overtime hours. Choose a policy that assesses financial considerations and employee workload.

5. Develop a rollout plan consistent with your company culture.

Many employees may be disgruntled at the prospect of clocking in and out. How you communicate organizational changes is as critical as what you communicate.

While this process may be painful at first, it could end up increasing your employees’ satisfaction and minimizing risk. Many employers are inadvertently violating the current FLSA overtime rules. A thorough audit to address the new regulations could prevent a class or collective FLSA action against your business. It’s an indirect savings that can directly impact the sustainability of your business.

Other resources to consider

For more information, review the DOL notice on this proposal. An FLSA Advisor tool can help clarify whether your employees are exempt. You can also contact your regional DOL Wage and Hour Division office for guidance.

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