The federal Wage and Hour Division of the Department of Labor (DOL) announced that new regulations governing overtime will go into effect on Dec. 1. These new regulations could ratchet up your labor costs and make federal audits of your payroll records even more expensive.
The new regulations will raise the salary limit for mandatory overtime for nonexempt workers from $455 a week ($23,660 annually) to $913 per week ($47,476 annually), more than doubling the salary limit. Starting Dec. 1, employees making less than $47,476 annually must be paid overtime at one and a half times their hourly rate after a 40-hour week.
What that means is more of your employees could come under the federal overtime rules. Salaried employees who perform work that is primarily executive, administrative, professional or outside sales that may have been exempt from mandatory overtime pay will now come under those rules if their salary is less than $47,476 annually.
How would this new regulation affect your company?
It’s important to realize that this new regulation will only affect jobs that are exempt from the Fair Labor Standards Act (FLSA) overtime rules and are paying less than $913 per week. Any jobs that are paid on an hourly basis are not exempt from the FSLA overtime rules and will not be affected by this rule change.
Related: Never mind new OT regs, are you classifying employees correctly?
Who can be exempt?
Take a look at how many of your employees are currently exempt employees. If you don’t know which of your employees are exempt, here’s a brief rundown of the three criteria that determine whether an employee is exempt. An employee must meet all these criteria to be considered exempt. More detailed instructions for determining whether an employee is exempt can be found on the DOL website.
First, to be exempt, employees must be paid a salary. Being paid a salary is defined by DOL as “an employee (who) regularly receives a predetermined amount of compensation each pay period on a weekly, or less frequent basis, regardless of the number of days or hours worked.”
Second, to be exempt, the employee must be paid a salary of at least $455 a week now or $913 after Dec. 1.
Third, and this is the most complicated part of this regulation, to be exempt the employee must be performing work that is executive, administrative, professional or outside sales. The DOL has much more detailed definitions for each of these categories of exempt work, so you should visit the DOL website if you have questions about what constitutes work in each of these categories.
Exempt employees that are being paid a salary greater than $913 per week or $47,476 annually, will not be affected, but employees who are now exempt and making less than $913 per week will no longer be exempt from overtime requirements.
Landscape contractors are most likely to have exempt employees in jobs such as administrative office work, designers and landscape architects, sales and some higher level supervisory personnel.
Minimizing the impact
Company owners should start now to plan for the changes coming this December. You can minimize the financial impact by:
- Limiting the hours of nonexempt employees to minimize overtime payments;
- Providing raises to nonexempt employees (who otherwise meet the salary and work requirements for exempt employees) that would take them over the $913 per week salary threshold if that would be less expensive than paying overtime;
- Set the hourly wages of newly nonexempt employees so their regular time plus overtime averages out to their previous salary; or
- Hire a part time employee at straight-time to pick up the time-and-a-half overtime of another non-exempt employee.
Review job descriptions and classifications now
Company owners also should use this opportunity to review the job descriptions and classifications of their employees to be sure that they correctly are applying the DOL regulations for exempt employees beyond just the salary limitation.
Many company owners believe that by simply offering an employee a salary above the threshold that they are exempt from the FLSA. However, employees must also meet the tightly-defined job definitions to be considered exempt. These definitions have not been changed by the new regulations.
Audits and enforcement
Violating the overtime provisions of the FLSA can subject a company to paying back wages, liquidated damages, fines and penalties. DOL likely will be stepping up audits and enforcement actions in 2017 to see that these new regulations are being implemented properly by employers. Now is a good time to make sure that all is in order.
