They’re (ALMOST) Here! New Overtime Rules Take Effect December 1st

October 17, 2016

As we’ve all heard by now, come December 1, 2016, salaried (that is, exempt) administrative, professional, or executive employees who make less than $47,476, become entitled to overtime.

Many employers are automatically giving their exempt employees raises in order to maintain the exemption.  Although raises may be appropriate for some employees, giving raises to all of your exempt employees  making less than $47, 476 probably doesn’t make good financial sense – and in many cases such a raise may be unnecessary.  With some basic work now, you’ll be able to craft a solution that fits your company’s needs and budget. Let’s get started.

First, REVIEW.  Who makes less than $47,476? How many hours do those employees work? If the typical work week is regularly 40 hours or less consider maintaining current salaries and paying overtime only in those rare circumstances when the person works more than 40 hours.  Just remember to change their status from exempt to non-exempt and require them to keep time records.  And don’t forget that if any of those employees are teachers, lawyers or doctors, they remain exempt regardless of salary.

Second, CALCULATE.  Have you really figured out what overtime will cost at your current salary levels?  One of the biggest challenges of the new rules is maintaining staff while sticking to your budget.  Before raising anyone’s salary (or terminating someone you’d like to keep) because the salary seems too far below $47,476 to make overtime financially feasible, actually crunch the numbers.  Calculate what the employees make per week.  (Annual salary/52 weeks = wages/week)  Calculate the current hourly wage. (Weekly wage/average hours per week). Calculate how much overtime will cost if you have to pay based on the employee’s current salary.  You may be surprised how little overtime will cost you – or you may find $47,476 is a bargain compared to the overtime charges.

Third, UTILIZE.  Have you considered how much time is actual compensable time? If your employees usually get one hour or one-half hour for a meal, once they become non-exempt, meal time (or other non-working time) is not counted toward the 40 hour total. You may have 2.5 to 5 hours of additional time per week. Of course, all working hours must be paid, but it’s less expensive to pay for a few hours of straight time. (REMINDER: If the employees perform any work during meal breaks, the meal breaks must be paid and counted toward the 40 hours.)

Fourth, MANAGE. Consider whether some of the routine tasks performed by your soon-to-be non-exempt employees can be performed by someone who either doesn’t work at least 40 hours per week or who makes significantly less. Reassigning tasks may keep overtime payments to a manageable level. Also, enforce your prohibition on unauthorized overtime. You can forbid unauthorized overtime, but you can’t refuse to pay once it’s worked. You can discipline an employee who works unauthorized overtime.

Still have questions? Call me. Together we’ll find a solution right for your business.

Jean Novak is co-chair of the Employer-Employee Relations Practice Group and member of the Business Services Practice Group. She can be reached at 412-281-5423 or at jnovak@smgglaw.com.