How New Overtime Rules Impact Businesses and Employees

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New Overtime Rules
By Melissa Dorsey,
Staff Accountant

What’s new in overtime?

To ensure President Obama’s promise of making sure every worker is compensated fairly for their hard work, the Fair Labor Standards Act of 1938 (FLSA) has been updated with key overtime provisions that will affect businesses and their employees.

Effective Dec. 1, 2016, the new FLSA laws will impact salaried workers and the minimum threshold to allow for time and a half. In order for businesses to avoid paying salaried employees time and a half, the employee must be paid more than the new standard of $913 per week or an annual salary of $47,476 limit. Below these limits, employees will generally be eligible for overtime pay. The new ruling has also established an automatic update to the salary and compensation levels every three years.

Background in brief

The FLSA set out to establish minimum wage, overtime pay, record keeping, and child employment standards. Because of the FLSA, salaried workers under a certain threshold are guaranteed overtime pay at time and half for time worked over a standard 40-hour work week, under a certain threshold. This threshold has not been increased since 2004 when it was raised from $250 per week to $455 per week. Additionally, the final ruling sets the annual compensation requirement or highly compensated employees (HCE) subject to minimal duties to the 90th percentile of full-time salaried workers at $134,004.

With these new rulings, employers are able to use incentive pay to satisfy up to 10% of the new standard salary level. This new policy reflects the many different ways employers currently pay their employees. This may seem like a huge increase to the threshold, but if we put it in perspective, we will see it is quite reasonable. In 1975 (when the threshold was $250) nearly 60% of workers qualified for overtime, while in 2016 the percentage qualifying for overtime is only 7%. How will this new ruling impact your business and employees?

An alternative solution

Employers can continue to pay newly overtime-eligible employees a salary and pay overtime for hours in excess of 40 per week. The law does not require that newly overtime-eligible workers be converted to hourly pay status. This approach works for employees who usually work 40 hours or fewer, but have seasonal or occasional spikes that require overtime for which employers can plan and budget the extra pay during those periods.

New rules produced by the government generally create new confusion. Do you need help working thru these new regulations?

Contact us today, and let’s start a conversation.

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