New Overtime Regulations Frequently Asked Questions

We’ve written previously on the Fair Labor Standards Act, the final overtime ruling released by Department of Labor in May, expanding overtime pay eligibility to approximately 4.2 million salaried workers nationwide.  This new law will have a significant impact on businesses, so it’s important to understand it and be ready for it when it takes effect December 1, 2016.

Many of our clients are still confused about the law and its implications, so we’ve compiled a list of the most frequently asked questions we’ve received regarding it.  We hope this helps, and spurs further inquiry on your part as to what you need to do to ready your business.  December 1 is alarmingly close.

Overtime regulations FAQs:

My business is small.  Does this even apply to me?

Quite likely, yes.  Small businesses are not exempt from the new overtime rule.  The Fair Labor Standards Act (FLSA) and its provisions apply to enterprises that have an annual gross volume of sales or business of $500,000 or more, regardless of the number of employees working for the company.  Additionally, certain types of business are automatically covered by the FLSA.  These include hospitals, residential care facilities, schools, and government offices.  Those employers must follow the new rules regardless of revenue.

What’s more, even if an employer is not covered by the FLSA, most of its employees probably are.  FLSA applies individual coverage to employees who regularly engage in interstate commerce or in the production of goods for interstate commerce. Simply put, this means that the employee’s work involves or relates to moving persons or things across state lines, and simple activities like making out-of-state phone calls, receiving or sending interstate mail or communications (including email), ordering or receiving goods from an out-of-state supplier, handling credit transactions, or performing bookkeeping for such activities push people into this category.  

Bottom line: It’s pretty unlikely you’ll be exempt from the new overtime regulations.

Are non-profits exempt from these new rules?

Probably not.  If the non-profit is performing activities for business purposes and receiving over $500,000 in annual sales, then it must comply with the FLSA’s minimum wage and overtime requirements. However, income from charitable activities, such as donations, is not considered towards the $500,000 requirement.  DOL has released guidance for non-profit organizations.

Do the cost of benefits contribute to the threshold amount?

No.  Benefits — with the possible exception of some percentage of bonuses — are not included in the salary thresholds of the new regulations..

What’s the best way to calculate overtime when the pay period starts or ends in the middle of the week?

Overtime must be calculated based on the hours worked in a workweek, not the pay period.  In other words, you cannot average the hours worked over more than one workweek.  If employees work more than 40 hours in a workweek, they’re eligible for overtime.

I have several employees with the same job title, but making less than the new salary standard and making more.  How should I classify them?

Generally speaking, employees performing the same job should be paid similarly (anti-discrimination laws mandate that).  However, sometimes there are valid exceptions.  

If each of the employee’s duties satisfy the applicable exemption requirements, it is not necessary for employers to reclassify those exempt employees who are already receiving more than the new minimum salary. For those employees whose duties satisfy the exemption requirement, but are receiving less than the new minimum salary, employers will either have to increase their salary to meet the new minimum or reclassify them as non-exempt.

Tread lightly when reclassifying employees solely to avoid the salary increase.  Yes, you’ll save money, but you may also encourage litigious employees to seek counsel to determine if these now non-exempt employees should have always been classified this way.  

A good percentage of my staff is part-time.  Can I pro-rate or annualize the pay for them to satisfy the annual salary standard?

No. Employers are not permitted to pro-rate a part-time employee’s salary in order to avoid compliance with the new rules.

Give it to me straight: What’s the best way to handle all of this?

Your only two real options are to either convert your employees to overtime-eligible status or raise your employees’ salaries above the new threshold.  We are happy to work through numbers with you.  Please reach out for help.

What if I don’t comply?

Employers who — after December 1, 2016 — have exempt employees that do not meet the new minimum standards will open themselves up to potential investigation by the DOL, as well as private litigation, including class action litigation. We strongly advise you to not take that risk.

Anything else I should be aware of?

The new overtime rules may impact your benefit plans.  You’ll need to evaluate what implications the new rule, and any changes you plan to make in response to the new rule, will have on your employee benefit plans.  Seek counsel on this one for a specific solution for your business.  

It’s time to take action and prepare for the changes that are (quickly) coming.  What questions do YOU have regarding the new overtime rules?

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