Business Litigation Blog

New Department of Labor Overtime Rules and How They Will Affect Your Business; Three Questions all Business Owners Must Ask

As many of ED&G’s clients are aware, this spring the U.S. Department of Labor announced changes to the overtime requirements under the Fair Labor Standards Act, resulting in more white-collar, previously-exempt employees becoming eligible for overtime. The changes become effective on December 1, 2016.

Previously, and until December 1, 2016, all employees paid less than a threshold salary of $455 per week received overtime for any hours worked over 40 hours per workweek, which is defined any consecutive seven-day period. Overtime pay must be a rate of at least one and a half times the employee’s regular pay. In addition to those employees earning wages less than the salary threshold, employees earning more than the salary threshold also received overtime, unless they were deemed “exempt” because their job was professional, executive or administrative.

First, what are the changes I need to be aware of?

Among other things, the revised regulations increase the salary threshold from $455 per week ($23,600 annually) to $913 per week ($47,476 annually). The resultant changes are expected to affect millions of American workers.

Second, what employees does this affect and what employees are exempt?

The new regulations will affect all employees who earn less than the new $913 weekly salary threshold. It will also affect some employees who earn more than the weekly salary threshold, if those employees are not considered “exempt.”

Employees subject to the ‘white collar’ exemption (and thus, are not entitled to overtime pay) fall into three categories: Professional, executive and administrative.

  • An employee will be subject to the professional exemption if he or she earns above the $47,476 threshold, paid on a salary basis, and (1) the employee’s primary duty is the performance of work requiring advanced knowledge (i.e. work that is predominantly intellectual in character, including work that requires the consistent exercise of discretion and judgment); (2) the employee’s advanced knowledge must be in a field of science or learning (this includes law, medicine, theology, accounting, actuarial computation, engineering, architecture, teaching, and various sciences and pharmacy occupations); and (3) the employee’s advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.
  • An employee is subject to the executive exemption if the employee earns above the $47,476 threshold, paid on a salary basis, and (1) regularly supervises two or more other full-time employees; (2) is tasked primarily with management as the primary duty of the employee’s position; and (3) has genuine input into hiring, firing, compensation, promotions or assignments to those the employee supervises.
  • An employee is subject to the administrative exemption if the employee earns above the $47,476 threshold, paid on a salary basis, and (1) performs office work directly related to the management or general business operations of the employer (not manual labor); and (2) exercises discretion and independent judgment on matters of significance.

Third, what can I do to ensure I remain complaint?

  • Keep detailed records! If, for example, your non-exempt employee earns $40,000 in annual salary (above the old threshold, but below the new threshold), after December 1, 2016, you will be responsible for paying that employee overtime wages for every hour above 40 hours worked in a particular workweek (a consecutive seven-day period). To be compliant, you must have detailed time records of all hours your non-exempt employees work.
  • Discuss with all employees their time spent on work performed out of the office, including time spent answering work-related e-mails or telephone calls, all of which must be calculated toward the employee’s workweek. Employers must have a mechanism for recording this time, and employees must report all time worked.
  • Develop a detailed employee handbook and policies for reporting hours worked and overtime worked. Have your handbook reviewed by a legal professional to determine compliance with overtime and other labor laws.
  • Clearly communicate all of your employment policies to all employees and strictly and consistently enforce them.

If you have any questions regarding your franchise business and the new developments in the overtime laws, please contact us at ED&G for a consultation.


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