Will the new overtime rule affect your business? The U.S. Department of Labor announced a final overtime rule that will make 1.3 million workers eligible for overtime pay under the Fair Labor Standards Act (“FLSA”). This new overtime rule goes into effect on JANUARY 1, 2020. There is no exemption for small businesses.
Do You Have Employees?
If you have employees then, YES, the new OVERTIME rule applies to you! The new year will be here before we know it, so you better jump on this. Here’s the deal with this new overtime rule:
- You can no longer pay a “salary” to ANY employee who makes less than $35,568 per year for a full-year worker;
- You may use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the $35,568 amount;
- Former salaried employees MUST now clock in and out;
- Employers MUST keep record of employees work time; and
- Any hours worked over 40 in a week MUST be paid overtime, time and a half for hourly employees.
Thus, these salaried employees are not considered “exempt” anymore but are now paid by the hour. This law could blindside many small businesses here in Utah. Today is the day to face this so you are not one of those caught with overtime violations and penalty fees for non-compliance. Ignorance of the law will not save you!
Where Should You Start?
Follow these steps to protect your business:
- Identify those employees who have been paid a salary (include any bonus or commissions) that is less than $35,568 a year;
- Calculate the actual hours these employees work per week. Hopefully, these employees have kept a record otherwise, you will have to estimate.
- Determine how much these employees will earn yearly when you have to pay them overtime at their current rate of pay. This is important to figure out to ensure your labor costs remain the same.
You Have Three Options To Consider
Here are your options to consider:
- Reclassify each employee from salary to hourly. Decrease the hourly rate to reflect the expected overtime hours, thus keeping your labor costs the same.
- Reclassify each employee and prohibit them from working overtime. If any employee works overtime without authorization, you still have to pay them overtime. While you will reduce costs, you will lose the extra hours each week these employees have worked above 40 hours.
- Reclassify each employee without decreasing hourly rates, pay the overtime which essentially gives the employees a raise so your labor costs will go up.
In order to maintain an employee’s “exempt” status from overtime, you must pay that employee $35,568 a year AND the employee must meet certain tests regarding their job duties. Job titles do not determine exempt status. There are three main exemptions available: Administrative, Executive and Professional. To qualify for the administrative exemption, the employee’s primary duty must be the performance of office work directly related to the management of the business and the employee has authority to exercise discretion and independent judgment with managing the business. For example, an “Office Manager” may not have discretion to hire and fire employees, so even though the title implies that the job is directly related to the general business operations, without authority to hire and fire, this office manager would not qualify to be a salaried employee.
This is another headache for the Small Business owner as the Department of Labor has not only changed the overtime rule but the potential penalties can be detrimental if you get it wrong. Protect your business and avoid making a mistake with overtime. Get in touch with us for more details. You’ll be surprised how easy it is to work with us!