Are You Ready For The New Overtime Rules?

Most businesses aren’t ready for the new overtime and worker classification changes to the Fair Labor Standards Act (FLSA) that the Department of Labor recently published, which will impact millions of U.S. workers and their employers. The rules go into effect December 1.

These changes will matter to many businesses and affect how they will pay some of their employees. To sum things up, if a company has a salaried worker making under $46,467 per year, they will either need to give them a pay increase, cut them to hourly, or start paying them overtime when they work more than 40 hours per week.

The new overtime and worker classification rules doubles the threshold from $23,660 that salaried employees could make and be considered non-exempt from overtime (meaning employers would have to pay them overtime if they made less than that amount). That threshold, which equals $455 per week, had not been fully adjusted for inflation since 1975.

While these labor rule changes are very significant, businesses do have until December 1st to implement them and be in compliance. With that in mind, what can small businesses do to prepare for this transition in the next few months?

Employers need to make sure that they understand their employees’ compensation structure and classification, as well as the rules around FSLA and what constitutes an employee as exempt or nonexempt. Salaried employees that earn more than the new threshold of $46,467 can be classified as exempt from overtime if their work consists mostly of executive, administrative or professional duties. While employees who earn less than that new threshold are probably classified as non-exempt, meaning they can earn overtime.

Going forward, it will be very important for employers to monitor the hours that their employees work. One would have to assume that some businesses will either reduce a worker to part-time, or to minimize the amount of work a salaried (but non-exempt) worker spends doing each week. In some instances, it also might make fiscal sense to change a non-exempt employee from salary to hourly, and then pay them overtime as necessary. All of this will require an employer to pay more attention in managing their employees’ work schedules.

This also means that employers will have to monitor more closely remote workers and their staff that perform work tasks after hours, like checking e-mails and responding to clients. Businesses may consider using a time and attendance system that tracks worker hours and can alert them when they near or exceed a 40-hour workweek.

While the new overtime regulations will have a significant impact on some companies, it’s a perfect opportunity over the next few months for employers to analyze their business labor and productivity as well as reassess actual jobs, requirements and descriptions.

Source: 5 Steps Small Businesses Must Take To Prepare for New Overtime Pay Rules,
Isaac M. O’Bannon, CPA Practice Advisor