Be prepared for new federal rules governing overtime exemption

The U.S. Department of Labor has finalized its recommendations for revisions to the laws governing employees considered exempt from overtime.

These recommendations have been submitted to the Office of Management and Budget and are expected to be substantial changes to the current law. The goal of the recommendations is to significantly increase the number of employees eligible for overtime.

Currently, employees are considered exempt from overtime under these situations:

• Employees must be paid a salary of at least $455 per week to qualify as exempt form overtime (time and one-half for any hours worked over 40 in a pay week).
• Job duties must include factors such as:
  • The employee must have significant influence in decisions of hiring or firing.
  • The manager should have significant authority to make decisions on matters that affect the operations of the business.
  • A significant portion of the manager’s time must be spent “managing” the business. Management responsibilities should not be incidental to the employee’s work.

The proposed rules are expected to increase the minimum salary to as much as $900 per week or more. This is a significant increase that could affect the bottom line for many companies.

Additionally, the factors the DOL uses when determining if an employee is exempt (called the duties test,) are expected to change as well. The new duties test is expected to include hard-and-fast rules requiring exempt employees to spend at least 50 percent of their time executing management or administrative duties.

Time spent in “exempt” functions is not the only consideration when determining exempt status. Other considerations include:

• The relative importance of the executive duties as compared with other types of duties
• His or her relative freedom from supervision
• The fact that his or her salary is greater than the wages paid to other employees for the type of nonexempt work performed by the executive/manager

Expect to see significant publicity once the final rules are announced. They could potentially affect millions of employees. The DOL has begun using its website to publicize new rules and laws, even creating downloadable phone apps to assist employees in calculating their overtime. The new requirements will likely be front page news on websites, social media sites and television news. Employees will become aware of the changes quickly.

With significant changes to the rules for overtime exemption, it is imperative that employers conduct an audit of their current exempt employees, correct any misclassifications, pay for any unpaid overtime and be prepared to make necessary changes to remain in compliance of the new rules.

As always, BCN stands ready to assist you in evaluating your exempt employee’s status. Please contact your Partnership Manager to assist in a review of your current employees’ status and to prepare to make changes as required by any new rules or laws.