More employees may qualify for overtime next year.
Earlier this year, the Department of Labor issued an overtime rule raising the Fair Labor Standards Act (FLSA) exemption threshold for employees. Barring a late appeal or injunction, employees making less than $679 per week or $35,308 per year would no longer be exempt from overtime pay starting January 2020. This is almost 50 percent higher than the current threshold of $455 per week and $23,660 annually, and is expected to affect one million employees currently classified as exempt.
Preparing now for this new federal overtime regulation will prevent your business from getting off on the wrong foot in the New Year.
Exempt vs non-exempt
The federal government divides all jobs into two categories: exempt and non-exempt. A non-exempt employee is entitled to overtime pay while an exempt employee is not. An exempt employee is paid a predetermined salary, regardless of hours worked, and therefore is not paid overtime wages. A non-exempt employee must be paid overtime (time and a half) for all hours he or she works beyond 40 in any given week.
Salary level is not the only factor used to determine eligibility for overtime. There’s also a duties test. Employers should review employee job duties against the following exemption criteria, which includes executive, administrative, professional, computer and outside sales. Keep in mind, exemptions focus on an employee’s actual day-to-day duties and responsibilities, not job title. Giving an employee the title of “manager” does not mean he or she is not entitled to overtime.
Misclassifying an exempt employee as non-exempt can leave your company vulnerable to a wage-and-hour lawsuit, back wages, penalties and interest.
The federal overtime law applies to all businesses regardless of how many people they employ. Here are ways you can prepare for this potential upcoming change:
- Review your team’s salary levels and duties to make sure you are complying with the current federal rules. Do you have any employees who would be newly eligible under the upcoming change?
- Talk to your employees about their preferences to find an arrangement that works for the both of you. This can include:
- Rescheduling employees so they don’t incur overtime hours
- Cutting costs elsewhere and budgeting for more overtime hours.
- Hiring more employees to spread the work around so that individual employees put in fewer overtime hours
- Weighing the cost of increasing salaries of certain employees to exceed the new threshold. If they often work overtime, this may be a less expensive alternative.
- If you need to reclassify staff, make sure employees know that they are not being demoted. Be clear that the changes are based on new government rules.
- Evaluate your business’s systems for time-keeping and tracking overtime.
Track time worked by employees
Business are wrong to assume they do not have to pay overtime if an employee works more than 40 hours without advance approval. It’s also never a good idea to require an employee to work off-the-clock to keep labor costs down.
Lastly, it is the employer’s obligation to keep and maintain accurate time records. A work schedule does not constitute an accurate time record. If your kitchen cook sues for overtime, and there are no accurate time records, the law allows the employee to merely estimate the number of hours worked. If he or she recovers unpaid overtime, a business owner will more than likely be required to pay double that amount as a penalty. The employer may also have to pay the employee’s reasonable attorney’s fees.