Time out: Overtime laws create stricter standards
New overtime laws mean employees could be seeing pay raises or less hours depending on how their employers respond.
The new overtime laws
Starting December 1, 2016, the standard salary for a white-collar exemption for overtime will more than double from $23,660 to $47,470. This means, if an employee makes less than $47,470 annually, that employee will be entitled to overtime pay unless they qualify for a white-collar exemption.
The white-collar exemption must pass three “tests”:
(1) Salary-basis test: Exempts an employee from overtime if they are paid a predetermined and fixed salary. That means the employee’s salary must not fluctuate due to work performed on a quality or quantity basis.
(2) A salary-level test: Exempts an employee from overtime if the employee makes more than $913 a week or $47,476 a year.
(3) The duties test: Exempts an employee from overtime if they primarily perform executive, administrative, or professional duties. The definition for these can be found with the Department of Labor’s regulations, available here.
It is important to note that an employee must pass all three of these tests in order to qualify for a white-collar exemption.
What qualifies as overtime
Overtime is calculated on a workweek basis. This means a 168-hour period, or seven days. A workweek cannot be averaged over two weeks. That means if an employee works thirty-five hours one week and forty-five hours the next week, that employee has earned five hours of overtime pay for the employee’s second workweek.
An employee’s workweek can start on any day and at any hour of the day. So, there may be different workweeks for different groups of employees.
How to plan ahead
To avoid salary-level requirements becoming outdated, the Department of Labor will automatically update salary and compensation levels every three years. So, just because an employer may be exempt under the rules taking place on December 1, 2016, that does not mean the employer will stay exempt. Employers should expect the see small deviations and plan accordingly.
There are multiple ways to plan ahead to accommodate employer’s needs and comply with the Department of Labor’s new overtime laws. Employers should consider:
• Increasing employees’ salaries who meet the other requirements for the white-collar exemption to the new minimum salary to retain the employee’s exempt status. (i.e. employees who perform executive duties.)
• Reducing or eliminating overtime hours.
• Reducing employees base salary (provided the employee is still earning applicable hourly minimum wage) and add pay to account for overtime for the hours worked over 40 in a workweek. This will keep the employee’s weekly pay constant.
• Paying an overtime premium over one-and-a-half times the employee’s regular rate of pay for any overtime hours worked.
The Takeaway:
New overtime laws mean employees who make under $47,760 must be paid overtime for hours worked over 40 in a workweek. Hours can only be computed for a 168-hour period, meaning employers cannot average out two weeks to avoid paying for overtime. Employers should plan ahead to comply with the law and understand the minimum salary will be adjusted every three years. To avoid paying overtime, an employee must pass a three-prong test.
– The Business Team
Scott | Josh | Jeremy
The Allen Firm, PC 181 S. Graham Street | Stephenville, Texas 76401 Ph: 254.965.3185 | Fax: 254.965.6539