Federal overtime rule - are you prepared?

As a business owner, it is your responsibility to stay on top of changing business and labor rules, regulations and laws.

Are you prepared? The Obama administration unveiled a new rule last month that could make 4.2 million middle-income workers eligible for overtime pay, a move that delivers a long-sought victory for labor groups. The regulations, which were last updated more than a decade ago, would let full-time salaried employees earn overtime if they make up to $47,476 a year, more than double the current threshold of $23,660 a year. The change is scheduled to take effect Dec. 1, 2016.

The Labor Department estimates the change will boost workers’ wages by $12 billion over the next 10 years. And since the new rule calls for the income threshold to be updated every three years based on inflation, the department projects the threshold could rise to more than $51,000 by 2020.

Employees who qualify as “exempt” are exempt from overtime regulations (and minimum wage laws), whereas “nonexempt” employees must be paid for every hour of overtime they work. The federal Fair Labor Standards Act (FLSA) and the laws of the 50 states regulate what constitutes “overtime.”

In the final rule, the Department updated the salary level above which certain “white collar” workers may be exempt from overtime pay requirements.

‘White Collar’ workers are defined as: Executive, Administrative and Professional employees.

How you can prepare:

  • Identify your exempt employees and ask these questions:
    • Are they paid on a salary basis? Are they paid at least $913 a week?
  • Track how many hours they work in a 7-day workweek.
  • What would be the cost to increase the employee’s salary up to $913 per week?
  • What would be the cost if you had to pay that employee overtime for all hours worked over 40?
  • If it makes financial sense to increase their compensation, you must assess their duties via these three tests (criteria):

    • Salary Basis Test
    • Standard Salary Level Test
    • Standard Duties Test

For specifics on these tests please see: https://www.dol.gov/whd/overtime/fs17h_highly_comp.htm

  • If it does not make financial sense to increase their compensation, or they aren’t paid on a salary basis, employees must be re-classified as “non-exempt”.
  • Pay them hourly or salary, employers must pay overtime for all hours worked over 40 in a work week.

For more information, please consult your CPA, legal counsel or contact your Human Resources Department, or visit https://www.dol.gov/whd/overtime/final2016/general-guidance.pdf

Michigan State University Extension has had a unique relationship with the regional economic development organization Northern Lakes Economic Alliance (NLEA) for more than 20 years. Recognizing the strength of combining resources, this partnership focuses on economic development, entrepreneurship growth and community infrastructure throughout a four-county region in the northwest Lower Peninsula, specifically Antrim, Charlevoix, Cheboygan and Emmet counties. As a result, the NLEA utilizes resources offered through MSU Extension as it provides leadership to state-wide programs sponsored by MSU Extension. 

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