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New Federal Overtime Rules Take Effect

New federal overtime rules take effect

As an employer, you should know that the federal Fair Labor Standards Act (FLSA) requires workers to be paid a federal minimum wage and that wage workers and certain “non-exempt” salaried workers who work more than 40 hours in a week receive overtime pay at one and a half times their normal rate for each extra hour.

The Original Proposal

During the Obama administration, the U.S. Department of Labor proposed new regulations to double the minimum salary level under which salaried “white collar” workers (in other words, managers and professionals) would be entitled to overtime pay from $23,000 a year to $47,000. (The threshold hadn’t been raised since 1975.)

During the Obama administration, the U.S. Department of Labor proposed new regulations to double the minimum salary level under which salaried “white collar” workers would be entitled to overtime pay, but the regulations were never implemented.

The proposed regulations also presented a new test designed to stop employers from misclassifying workers as “managers” exempt from overtime laws when they really weren’t. The goal was to extend overtime protections to more than four million new workers.

But the proposed regulations caused an uproar in the business community. Lawsuits suggested the Labor Department didn’t have the authority to make the change, and the regulations were never implemented.

The New Overtime Rules

The Labor Department under President Trump worked on its own version of new overtime rules, which took effect Jan. 1. Because the changes could impact how your company assigns duties and approaches hiring and payroll management, it’s important to be aware of what the new rules say.

Under the new rules, salaried executive, administrative and professional employees must be paid at least $684 a week, or $35,568 per year, to be exempt from overtime, significantly less than the Obama-era proposal, but still an increase.

Up to 10 percent of that may come from nondiscretionary bonuses (bonuses based on a set of objective criteria), incentive payments and commissions, as long as those payments are received at least once a year.

Employees Exempt from Overtime

The new rules define “executive,” “administrative” and “professional” employees exempt from overtime:

  • An “executive” employee is someone whose main responsibility is managing the company or one of its departments. He or she also must regularly direct the work of at least two full-time employees and have either authority over hiring, firing and promotions or significant input into such decisions.
  • An “administrative” employee is someone who does office work related to general business operations and/or customers. To be exempt, an administrative employee’s work must involve decision-making and independent judgment on significant matters.
  • A “learned professional” is someone whose work requires advanced knowledge in a field of “science or learning” and involves the constant exercise of discretion and judgment.

You should contact an employment attorney versed in all the ins and outs of the new regulations to help you evaluate your workforce, including which workers you currently classify as “exempt” from overtime requirements, to make sure they still qualify.

For workers who do not qualify, you need to decide whether to give them a raise so they qualify as exempt or to reclassify them as “non-exempt” and pay them overtime.

There are other issues to consider as well. If you reclassify workers as non-exempt, will they see it as a demotion, impacting morale in your workplace? Might you consider hiring more workers instead of paying overtime to existing workers who didn’t previously qualify?

And if you do this, do you run the risk of expanding your workforce to the point that you’re subject to the Affordable Care Act and the Family and Medical Leave Act, when you previously were not?

Obviously there’s no one-size-fits-all approach. That’s why it’s so important to talk to an employment lawyer where you live to discuss the decisions you will need to make regarding your organization.

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