New Overtime Rules -The Small Business Owner’s Guide to Obama’s Overtime Rules

If you’ve opened the internet or a newspaper in the past week, you’ve definitely heard about the Obama Administration’s newly enacted changes to overtime rules.

Politics aside, you probably have some concerns about these changes since there’s a good chance the Department of Labor’s ruling will directly impact you and your business.

Before we get into the changes you’ll need to make in order to comply with the new rules, let’s first review precisely what those changes are (remember, they take effect Dec. 1, 2016).

Proposed changes to overtime rules

The current rules, which expire Nov. 30, dictate that salaried workers making more than $455 a week, or $23,660 a year, do not qualify for required overtime pay. The new changes more than double that threshold to $913 a week, or $47,476 a year.

So how about that awesome employee you’ve been paying $40,000 who definitely pulls more than 40 hours a week? They will soon be entitled to overtime compensation at time-and-a-half for every hour after 40 hours a week. (The overtime compensation rules do provide exceptions for employees who perform duties that are mainly executive, administrative, or professional. Those employees would not be entitled to overtime and could remain exempt (i.e. salaried as opposed to hourly).

To be certain you know just how to classify any role that could be affected by the new rules, you’ll have to review their job description and subject it to the “duties test,” which describes the specific duties that qualify employees for exemption from overtime pay.

In case you were wondering about a business making less than $500,000 of annual revenue, it turns out that there is no exception for small businesses, even though the Department of Labor FAQ fact sheet does say that “the proposed rule applies to employees of enterprises that have an annual gross volume of sales made or business done of $500,000 or more, and certain other businesses.”

So if your business makes less than $500,000 of annual revenue, is it exempt? Probably not! Under the Fair Labor Standards Act (FLSA), individual employees may still be “covered in any workweek when they are individually engaged in interstate commerce, the production of goods for interstate commerce, or an activity that is closely related and directly essential to the production of such goods.”

Well, that cleared it up, right?? Leave it to federal lawmakers to really make sure you’re crystal clear on the new regulations that affect your business. LOL!! Now all cynicism aside, this is a serious topic that you might want to sort out with your professional expert.

What really determines if an employee falls within one of the white collar exemptions?

 To qualify for exemption, a white collar employee generally must:

  1. be salaried, meaning that they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”);
  2. be paid more than a specified weekly salary level, which is $913 per week (the equivalent of $47,476 annually for a full-year worker) under this Final Rule (the “salary level test”); and
  3. primarily perform executive, administrative, or professional duties, as defined in the Department’s regulations (the “duties test”).

Certain employees are not subject to either the salary basis or salary level tests (for example, doctors, teachers, and lawyers). The Department’s regulations also provide an exemption for certain highly compensated employees (“HCE”) who earn above a higher total annual compensation level ($134,004 under this Final Rule) and satisfy a minimal duties test. 

In the end, these proposed changes are a big deal with many implications, and the confusion you may feel around them isn’t your imagination. As The L.A. Times reports:

According to the Obama administration, the new employers could cost employers between $240 million and $255 million per year in direct costs.

Business groups estimate the costs would be much higher. A recent study commissioned by the National Retail Federation estimated employers could shell out as much as $874 million to update payroll systems, convert salaried employees to hourly, and track their hours if similar regulations were imposed.

There is a little time left until December 1, 2016, so you should start planning now!