How the New Overtime Hours Will Change Employee Pay

New rules about salary thresholds and overtime pay will go into effect on December 1, 2016. The new rules will replace the legislation that has been in effect since 2004 and will potentially affect about 4.2 million workers. The rules may be difficult for some companies to comply with and all companies will be held accountable to the new standards, so it is important to understand what the changes may entail.

New Annual Salary Threshold

The new annual salary threshold will be $47,476 or $913 per week compared to the old salary threshold of $23,660 or $455 per week. This means that in order to qualify as exempt from overtime, employees must meet these pay thresholds or else be paid as hourly workers with overtime. For companies with employees currently working over 40 hours per week and making less than the new salary threshold, the employees will have to be either given a raise or converted to hourly pay.

Potential Penalties

For companies that do not make the appropriate changes to comply with the laws, the penalties may be stiff. Employers may be liable for paying up to double the amount of back wages owed plus interest for as much as three years. Employees must also meet the duties test for overtime exemption, which means that they must be considered to be in an executive or supervisory position, or else employers will be responsible for paying overtime to those workers for hours worked over 40.

Exemptions to the Law

Since the new legislation may be difficult for some small businesses to conform to, businesses that make under $500,000 in annual revenues will not have to comply with the new rules at this time. Companies that award employees nondiscretionary bonuses, or bonuses based on set goals, may also use those bonuses to count as up to 10 percent of employee wages. Discretionary pay such as holiday pay that may fluctuate will not count.

Options for Compliance

Employers may work to comply with the new laws using several different tactics. Giving all salaried employees a raise to meet the new thresholds would be a simple fix in an ideal world, but many companies could not absorb the labor hike. If there are employees that are close to the threshold, however, it makes sense for employers to give these employees a raise to meet the new threshold.

For the majority of employees that make salaries that are far less than the new wage threshold, employers will most likely convert the job type to hourly and limit the amount of overtime allowed. Companies will have to handle this transition carefully in order to avoid affecting employee pay dramatically and potentially losing many employees.

How HRIS May Help with Compliance

Since the changes may be complicated to implement and easy to inadvertently disobey at first, an HRIS can be a valuable tool. An HRIS can make it simple to convert many employees’ job classifications or salaries quickly. For those employees that have been switched to hourly, a scheduling tool can help with tracking hours and avoiding overtime.

Authored by: Dave Rietsema

Sources: