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Is Overtime Pay for Exempt Employees Really Becoming Law?

Well, not actual overtime pay for exempt employees. But, it will feel that way when your overtime exempt workers hear this:  “You may be getting a pay raise if you make less than $50,440 a year (before taxes)!” 

Wait, what?
About 15 million salaried overtime exempt employees who have earned about $455 a week or around $23,660 a year will be greatly affected next year.

For 2016, the FLSA overtime exempt wage threshold is proposed to be bumped up to $970/week which is about $50,440 a year. This is only the second exempt status wage threshold increase in the federal overtime laws since 1975.

Will I still be required to reclassify my overtime exempt employees?
Well, you may definitely have the option to convert an exempt worker to nonexempt status, going from salary to hourly.  This may also mean that these folks have to give up some benefits.  Bonuses may not be given out as frequently or your policies may change regarding paid vacations. Many employers are expected to convert exempt workers to hourly (non-exempt) in order to save on the $970/week mandate. If this is the choice your company makes, a fair hourly wage will need to be determined and overtime (time and 1/2) paid when the employee exceeds 40 hours in a 7 day work-week.

What brought on such changes?
President Obama has observed that middle class Americans nationwide are working long days for less due to the outdated rules on overtime exempt pay requirements.  The Dept. of Labor (DOL) agreed.  Together, they have proposed a new plan that will increase wages paid to current overtime exempt workers by 1.2 billion dollars in 2016.

What may be some possible cons?
Many entry-level managerial positions may fade away due to these changes.  Some employers may insist their employees put in only 40 hours a week and nothing more.

The National Retail Federation (NRF) has already made it known that if this proposal goes into effect, employers will create structures that do not require employees to work overtime. They have calculated that the new proposal will cost them millions of dollars.  Instead, they will:

  • Lower hourly wages
  • Hire more part time employees
  • Reduce employees working hours

How will the new federal overtime laws change the way your company operates? This is the question on the minds of employers across the country as we all await the publication of the Final Rule, which could be any day. Now is the time to begin auditing your overtime exempt employee’s job descriptions and next year’s payroll budget.

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  • Doug Wingert says:

    I’m the HR director for a small nonprofit organization. I need to clarify that this is still a proposal, not a regulation change, right? If the proposal becomes law, I don’t believe employers could possibly comply by a January 1, 2016 effective date. Do you have any insight on the timing of this change?

    • Business Training Center from Pryor.com says:

      The latest information indicates that we probably won’t read about the decision until July. The window for implementation is said to be 30-60 days from posting the Rule. So, employers should use this little extra bit of breathing room to prepare.

  • Lisa Smith says:

    Just a quick update on this article.

    We received an update to this news after the article had been submitted. The new word from the Solicitor of Labor, Patricia Smith, is we will not expect to see the Final Rule until late 2016. So, this is good news for employers who will enjoy the extra time to prepare.

    Enjoy the rest of your year!

    Lisa Smith

  • Annie says:

    How will this be enforced by the government? Can you answer?

    • Business Training Center from Pryor.com says:

      It will be enforced by the Department of Labor’s Wage and Hour Division. The new guidelines will be applied and enforced the same way Exempt/Non-Exempt and Overtime Rules are currently enforced.

  • I have an employee who receives a salary which is less than the $45,000, but receives commission, which push is pay over $45,000 last year. The commission was paid via a 1099. Is he still exempt?

    • Business Training Center from Pryor.com says:

      Thank you for your comment. At this time, the final rule has not yet been released and does not govern independent contract work (1099s).

      Without more detail (full job description, etc.), it is hard to say how this worker would be treated under the new rule or what duties are subject to change. The material covered in this blog is for educational and informational purposes and does not constitute rendering legal advice. You may benefit from checking out the US DOL website for updates.

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