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Businesses must take action following new overtime rule

Under new Department of Labor rules, employees who make less than $35,568 are now eligible for overtime pay. Starting January 1 the rule raises the salary cutoff for so-called “white collar” exemptions to $684 a week, up from $455 a week ($23,660 annual).

As a result, businesses are advised to evaluate pay rates, hours and nonexempt classifications in advance of the change. Some actions steps:

  • Review white collar exemptions: Identify exempt employees whose salaries fall below $684/week. Estimate how many hours these employees work each week. Then decide whether to raise their pay to meet the new threshold or change their status to nonexempt and pay overtime.
  • Review highly compensated employee exemptions: Identify any employees currently classified as exempt under the highly compensated employee exemption. That threshold will increase to $107,432 per year, from the current $100,000 level. Conduct a similar pay analysis.
  • Adjust time-tracking expectations: If you will be changing employees from exempt to nonexempt status, be ready to train them on their new timekeeping responsibilities. The Fair Labor Standards Act requires careful record keeping to track the number of hours nonexempt employees work.

Job rules do not change under the new regulations, and raising an employee salary above the threshold doesn’t automatically make them exempt from overtime pay. To qualify for exempt status, an employee’s role must be primarily executive, administrative or professional in nature, as defined by the regulations.

The current salary limit was set in 2004 under the George W. Bush administration. Higher thresholds that would have gone into effect under the Obama administration were struck down in court. While the Obama-era rule would have updated the salary limit automatically every three years, the new rule has no such automatic increases. The Labor Department can update the threshold every four years following a notice of proposed rulemaking and comment period.

If you have not reviewed your employee classifications in a while, or if you have any concerns about adhering to the new rules, this would be a good time to audit your practices. Consult with an experienced attorney for assistance.

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