Starting December 1, 2016, businesses of all sizes will be required to uphold the new federal overtime regulations as outlined by the final rule announced on May 18, 2016. These changes will bring overtime pay protection to an estimated 4.2 million workers nationwide.
It’s no secret that staying up to date on government regulations is critical for any small-business owner, but these regulations change more frequently than most people realize. As the leader of your business, it’s your responsibility to stay abreast of the latest federal regulations—the growth and success of your company depends on it.
With the repercussions of this big change less than a month away, we’ve broken down the new regulations to outline what small-business owners can do to prepare for the shift in the tides.
- Increase to Overtime Salary Threshold
Before: Previously, employers were required to protect employees making less than $455 per week ($23,660 per year) from unpaid overtime work. The law specified that any salaried worker in this earning category—except for those in the administrative, professional, or executive employee category—would be guaranteed time-and-a-half pay after working more than 40 hours in a week.
After: The salary threshold will increase to $913 per week ($47,476 per year) beginning December 1, 2016. This ruling was determined by selecting the lowest-wage census region in the United States and setting the threshold at the fortieth percentile of earnings in that region.
Tip: With this change in mind, small-business owners looking to save money on everyday expenses will need to take steps to ensure full-time employees who qualify for this exemption are not working more than 40 hours per week.
- Job Description Exemptions Lifted
Before: Within the current ruling, if an employee’s position has been classified as administrative, professional, or executive through the duties test, they would be exempt from overtime pay—despite their salary level. This has allowed some businesses to pay employees less than $455 per week, but still exempt them from overtime pay.
After: Employers can no longer exempt employees earning under the salary threshold through the duties test. All employees that fall in the new overtime standard salary threshold will be eligible for overtime pay.
Tip: If you’re feeling uncertain about the exact parameters for duties tests and position exemptions, refer to the United States Department of Labor’s guide for small businesses. It contains useful information for determining how to categorize and compensate your employees in accordance with the recent updates to the Fair Labor Standards Act (FLSA).
- Automatic Threshold Increases to Combat Inflation
Before: The Fair Labor Standards Act (FLSA) does not specify how often wages and salary thresholds should be adjusted, which is why the minimum salary requirement has remained at $23,660 since 2004.
After: From this point on, salary amounts for exempt employees will increase every three years, with the next update scheduled for January 2020.
Tip: Although the most pressing rules will go into effect December 1, 2016, SMBs need to be watchful for changes like this that will impact profitability not only now, but also in the years to come.
- Raised Threshold for Highly Compensated Employees
Before: Prior to the publication of the final rule, the federal salary requirement for highly compensated employees (HCE) who are subject to a minimal duties test was $100,000.
After: The annual compensation requirement for HCEs who must take a duties test has been raised to $134,000, which is the annual equivalent of the ninetieth percentile of full-time salaries in the United States. In order to meet this HCE exemption, the employee must regularly complete at least one of the job duties described in the regulations for executive, administrative, or professional employees.
Tip: Although most SMBs do not employ HCEs, the salary regulations pertaining to this group of wage earners are good to keep in mind for future growth. For more information on regulations regarding bonuses and commissions given to meet the salary requirement, read the “Inclusion of Nondiscretionary Bonuses and Incentive Payments” section in the WHD final rule fact sheet. However, with such a significant increase, simply paying for overtime hours may be the more economical option in the long run.
The Verdict: Start Preparing Now
Before the change goes into effect next month, prepare now by keeping employees responsible for their time. Start by asking them to report in an official setting—that way you won’t be liable for any undocumented overtime hours. It’s also a good idea to let employees who were previously exempt know of the rule changes before they happen so you can prevent accidental FLSA violations and possible legal issues.
As a small-business owner, what does this mean for you? Do you feel prepared for how this change will affect your business? If your answer is no, it’s probably time to get to work.