Proposed Overtime Changes: How and When They’ll Affect Your Business
Last week, the Wage and Hour Division of the United States Labor Department delivered a Notice of Proposed Rulemaking (NPRM) to raise the salary threshold for overtime from $23,660 to $50,440.
The proposed regulation would affect over five million employees, who would become entitled to time-and-a-half pay for every hour worked beyond 40 hours per week.
What’s the source of this overtime regulation?
Currently, the Fair Labor Standards Act states that employees throughout the United States are entitled to overtime pay when they work more than 40 hours a week, but the law exempts a class of “white-collar” employees from earning overtime.
In order to prevent companies from simply naming every employee a manager or supervisor to avoid paying overtime, the law also sets a minimum salary threshold of $23,660, under which an employee must be paid overtime, regardless of his or her title and duties.
What specifically is changing with the overtime regulation?
The proposed overtime rule currently:
- Raises the salary floor for exempt employees from $23,660 to $50,440
- Pins this salary threshold to wage changes, matching the 40th percentile of weekly earnings for full-time salaried employees
- Raises the annual compensation requirement for highly compensated employees (those ineligible for overtime, regardless of hours worked) from $100,000 to $122,148, or the annualized value of the 90th percentile of weekly earnings for salaried employees
However, the following aspects of the proposal are still being clarified:
- The Administration requested feedback on the managerial and supervisory test, which determines if an employee’s duties makes her or him exempt from overtime despite earning above the $50,400 threshold
- The Administration also requested feedback on whether bonuses, performance pay, or nondiscretionary compensation should be factored into an employee’s salary
The request for public input means that many aspects of this rule are likely to change.
Will this affect my small business?
Yes—right now, the overtime regulations do not provide an exemption for small businesses, and the rule will also apply to non-profits. Any enterprise with an annual gross volume of sales made or business done of $500,000 is currently and will likely continue to be required to pay overtime.
When will the overtime regulation go into effect?
Don’t worry, this doesn’t mean your payroll expenses will double tomorrow. We estimate that the regulation will likely go into effect in spring of 2016.
Here’s a timeline to track the overtime regulation’s progress:
End of mandatory 60-day comment period
First week of November
End of potentially extended comment period (if you’d like to comment on the rule, you can do so here)
Spring 2016-Early 2017
Estimated effective date (timing is at the Administration’s discretion and potential legal or legislative action can further delay implementation)
For more information, read the Labor Department Fact Sheet on the Proposed Rule and Proposed Rule FAQ. We’ll keep you posted on any additional updates.
How do I prepare my business for these changes?
Regardless of when the overtime regulation goes into effect, you can ensure you’re compliant by implementing proper payroll and time tracking software early on. With Zenefits, you can connect all of your HR systems and enroll in group benefits, all for free, from a single platform.
Get a free demo to see how it works.
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