New Overtime Rule Expected Soon

Just a few years ago (2016) the federal government announced an increase to $47,476 in the salary test for exemption from overtime payment, nearly double the former salary test of $23,660 (in effect since 2004 when minimum wage was $5.15 per hour).  Employers scrambled to comply, in some cases giving substantial salary increases to avoid paying overtime to eligible employees.  And then … the increase was struck down by a federal judge in Texas leaving many happy employees (if the salary increase wasn’t rescinded) and confused employers.

Now the Department of Labor is set to issue a Notice of Proposed Rulemaking “to determine the appropriate salary level for exemption of executive, administrative and professional employees.” What does this mean to you, as an employer?  Currently, experts expect an increase in the salary test for exemption from overtime to the low-to-mid $30,000s.  While we are waiting for this announcement, expected in March 2019, here are some other things that you need to know that effect how you pay your employees:

• Employees must be paid at least the federal minimum wage of $7.25 per hour unless the state or local minimum wage is higher.
• “Salaried” does not mean exempt from overtime! Exempt status is determined by job duties, the aforementioned salary test (currently, $23,660 annually or $11.375 hourly) and how the employee is paid (must receive a pre-determined amount every pay period regardless of how many hours are actually worked).
• The job duties test for overtime exemption has three criteria:
  1. The employee’s primary duty must be in a “management” role, i.e. supervising at least two employees, as well as having the authority to hire and fire employees.
  2. The employee’s primary duty must be performing office or non-manual work directly related to management of the company and exercise discretion and independent judgment with respect to matters of significance.
  3. The employee’s primary duty must be to perform work requiring advanced education or certification.
• Non-exempt employees include anyone who is paid on an hourly basis but some salaried employees may also be non-exempt based on job duties.
• Non-exempt employees must be paid 1.5 times their regular hourly rate whenever they work more than 40 hours in a workweek. Hours worked do not include paid time off (sick, vacation, holidays, etc.).
• Non-exempt employees may not “waive” overtime when they work more than 40 hours in a workweek.
• Public sector employers may grant compensatory time when a non-exempt employee works more than 40 hours in a workweek, but private sector employers may not do so.

To prepare for the coming change in the salary test, now would be a good time to review your current job descriptions and practices to make sure that your employees are classified correctly as exempt or non-exempt and that you are paying overtime correctly.

An HR professional can help you with all of your human resource needs, from hiring the right employees, running background checks, creating employee handbooks that include anti-harassment policies and procedures, managing employee performance, staying legally compliant, automating employee records, and anything else you need to create an environment where employees can provide the services that you need to run your business.