On May 18, 2016, the Department of Labor finalized major revisions to overtime laws to modernize the rules for fair pay. Currently, employees making less than $455 per week ($23,660.00 per year) are eligible for overtime pay.
Also, at present under the Fair Labor Standards Act, white collar workers who are employed as executive, administrative, professional and outside sales employees may be exempt from both minimum wage and overtime pay requirements if they earn more than $455 per week (the “White Collar Exception.”)
Effective December 1, 2016, employees making less than $913 per week ($47,476.00 per year) will become eligible for time-and-a-half pay for time worked over 40 hours per week (the “Final Rule”). In addition, the Final Rule changes the salary level for the “White Collar Exemption” from its previous amount of $455 per week to the post December 1, 2016, level of $913 per week.
The following explains the changes in the form of a hypothetical. Currently, Employee A is a salaried Operations Manager making $767.00 per week or approximately, $40,000.00 per year. Employee A does not qualify for overtime pay now. Beginning December 1, 2016, Employee A would qualify for overtime pay because the salary for this employee is less than $913.00 per week. If Employee A has been historically working 45 hours a week and that trend continued, then in 2017 that employee will be owed an additional $7,478.25 in overtime.
Per the Department of Labor, this will impact 156,000 workers in the State of North Carolina and 4.2 million workers across the nation. The Final Rule will require employers to consider whether they would rather pay higher overtime rates, raise employee salaries above the $47,476.00 threshold, or limit workers’ hours to 40 hours per week.
In preparation for these changes, employers should consider:
- Educate and train the workforce regarding the changes to the law to ensure proper timekeeping and conformance with the regulations;
- Determine whether to reclassify employees as hourly versus salary;
- Review and revise handbook policies to ensure uniformity with changes required by the Final Rule and prohibit overtime;
- Review and revise bonus structures in order mitigate payroll losses; and
- Complete an audit of the payroll systems and procedures to ensure the proper calculation and recording of time worked by employees.
Employers should consider utilizing this opportunity to reevaluate their payroll methods and procedures, as failure to take heed of the changes set to take place on December 1, 2016, could result in loss of revenue for the company, fines, or legal consequences.
