Have you talked to your employees yet about the OVERTIME law that changes on January 1? Yes, I am referring to the Department of Labor’s (“DOL”) new overtime rule that increases the overtime exemption threshold from $23,660 to $35,568.
BACK IN 2016 THE OBAMA OVERTIME RULE WAS PUT ON HOLD AND EVENTUALLY, THROUGH COURT CASE FILINGS WAS INVALIDATED. TODAY, THERE IS A NEW OVERTIME LAW THAT GOES INTO EFFECT ON JANUARY 1, 2020. FOR MORE INFORMATION, CHECK OUT RECENT BLOG POSTS ON THE NEW OVERTIME LAW AND WHAT YOU SHOULD BE DOING TO GET READY.
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.
APPROACH CONVERSATIONS INDIVIDUALLY
Another reason to take action now is because Utah law requires that employers give notice to an employee whose wages may be changed prior to the actual change. Thus, if you decide that a certain employees’ hourly will be reduced to compensate for the required overtime, you are obligated to notify the employee BEFORE January 1, 2020. Its time to have those conversations so your employees understand why you are changing their pay rate, or if you are requiring no more overtime. Each person will react differently and do not underestimate the value of communicating directly with each individual employee who will be affected by your changes.
Change opens the door to mistakes and legal action. As you make these overtime changes and talk with your employees, make sure you document what you discussed, the date, and who was involved in the conversation. Arming yourself with correct and accessible records is one of the best ways to protect your business. Also, keep records of employees’ hours for at least 3 years in case a dispute arises. The statute of limitations is 2 years but the DOL can go back up to 3 years for willful violations.
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!
Editor’s Note: This post was originally published in November 2016 and has been edited to include information about the new overtime rule effective on January 1, 2020, for accuracy and completeness.