A new federal overtime proposal may cost employers a total of $1.2 billion. And that’s only in the first year, and it doesn’t include administrative costs. 

The U.S. Department of Labor has proposed to increase the salary threshold for employees to qualify as exempt from overtime to $55,068 per year, almost $20,000 more than what it is now. This means that anyone earning a salary between $35,568 and $55,068 a year – that’s 3.6 million workers – would become eligible for overtime pay, provided they meet the other qualifying tests. 

Here are some tips on how to prepare your business for this proposed new rule change, so you can reduce the cost to your business and still comply with the law. 

The basic overtime pay rules 

All employees who earn less than the salary threshold must be paid one-and-one-half times their hourly pay rate for all hours worked over 40 in any given workweek. Keep in mind that just because an employee earns the salary threshold or more, that doesn’t necessarily mean you don’t have to pay them overtime. 

Two more tests need to be met to qualify most employees as exempt from overtime: 

1. The duties test, which requires the employee to primarily perform either executive, administrative, professional, computer, or outside sales duties; and 

2. The salary basis test, which means the employee must be paid a predetermined and fixed amount that is not subject to reduction because of variations in the quality or quantity of work performed. 

What to do about the proposed new rule 

Here are four suggestions to prepare for the proposed rule change: 

1. Start tracking how many overtime hours your currently exempt employees work, that is, those who earn between $35,568 and $55,068 per year. This will help you determine whether it is more cost effective to raise their salaries to $55,068 so they remain exempt from overtime, or to simply pay them overtime when and if the rule becomes effective. 

2. Another strategy is to lower the employee’s base wage after factoring in the amount of overtime you will have to pay, so that the employee’s pay remains the same, while you are still complying with the law to pay them overtime. Keep in mind that this may cause a morale problem. 

3. Use the proposed new rule as an opportunity to revisit whether all your exempt employees meet all the tests – duties test, salary basis test and salary level test – and correct any misclassifications now. 

4. Update your record keeping procedures and your Employee Handbook when and if the rule becomes final. 

We recognize that what we suggest here is time consuming and costly, but it will save you thousands of dollars in the long run. We can help you determine how much overtime you would have to pay under the proposed new rule, revisit whether all your currently exempt employees meet all the tests, correct any misclassifications, and update your record-keeping procedures and Employee Handbook. 

We’ll make sure you do it right, advise you appropriately, and free you up to run your business.

Schedule a Strategy Session with us today.

To learn more, watch our video

This blog is for informational purposes only. It is not offered as legal advice, nor is it intended to create an attorney-client relationship with any reader. Consult with competent local employment counsel to determine how the matters addressed here may affect you.

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