Small business owners may be in for a shock later this year when new Department of Labor Regulations governing overtime go into effect. On December 1, 2016, a Final Rule by the Wage and Hour Division will go into effect, causing approximately 4.2 million currently exempt workers to have a right to time and a half pay from their employers.
The current law exempts anyone making more than $455 a week from being eligible for overtime, but that number will rise by over 100 percent to $913 a week on December 1, when the final rule becomes law. What this means for employers is that they will have to pay overtime to many employees who make up to $47,476 annually while before any employee making over $23,660 annually were exempt from overtime.
Only executive, administrative, professional, computer and outside sales employees (based on their job duties, which makes up the “duties test”) making $47,476 or more will be exempt from being paid overtime. Each of the exempt job categories requires a number of factors to be met to qualify for the exemption.
Another change in the overtime regulations raises the threshold for “highly compensated employees.” Under the previous law, any employee making more than $100,000 annually would be exempt from being paid overtime without delving fully into the duties test. Starting December 1, a highly compensated employee will not be exempt without regard to the duties test until he or she makes $134,004 annually.
The new rule also has a mechanism that will recalculate the income levels based on the 40th percentile of earnings of full-time salaried workers in the lowest Census Region (currently the South) every three years beginning on January 1, 2020.
Generally, employees of enterprises that have an annual gross volume of sales made or business done of $500,000 or more are covered by the Fair Labor Standards Act (FLSA) and will be subject to these new rules. In addition, employees of certain businesses are covered by the FLSA regardless of the amount of gross volume of sales or business done. These businesses include: hospitals, businesses providing medical or nursing care for residents; schools (whether operated for profit or not for profit); and public agencies.
If you have any questions about the new overtime rules going into effect this year, please reach out to Hoffman & Associates for help with your unique situation.