Are you aware that because of new regulations, all hourly and salaried employees earning less than $47,476 per year must be paid overtime for work exceeding 40 hours per week? The Department of Labor estimates that when this new rule goes into effect December 1, 4.2 million additional employees will be eligible for time-and-a-half when they work over a 40-hour week. The Department of Labor believes this will create an increase in compliance. Others fear that this will mean an increase in litigation. You can read more about that here.
So how does this affect your company? You must decide how your business will comply. To help you plan now, I've called upon Eric Magnus, Jackson Lewis, P.C, to provide us with his excellent legal advice. He outlines three options you must consider now so that by December 1, your business is prepared for compensation adjustments and equipped with time-tracking measures. Here's Eric's advice:
⎖⎖ As you have probably heard by now, effective December 1, 2016, nearly all employees that are exempt from the requirement to pay overtime for hours worked over 40 per week must be paid an annual salary of at least $47,476 ($913/week) in order to remain exempt.
This means that if you have any employees, including Managers and Assistant Managers, that are not currently being paid overtime because they are exempt, and those Managers currently make less than $47,476, you must take action before December 1, 2016 in order to come into compliance. Plaintiffs’ attorneys and the United States Department of Labor are expected to be particularly aggressive in ensuring compliance with the new rule after December 1, so taking steps to come into compliance is critical and urgent. While there are active legal efforts to stay implementation of the new Regulations, these efforts are very likely to come to fruition prior to December 1.
While all situations are different, there are essentially three options businesses can take to come into compliance:
• Option 1: Give everyone a raise. The easiest way to comply is to increase the salary of any exempt employees to a minimum of $47,476 per year. If the employees can reasonably be expected to receive non-discretionary bonuses or other payments of at least $4,747.60 per year, the salary can be as low as $42,728.40. Note that a “non-discretionary” bonus means one that is automatically earned upon achievement of stated objectives rather than one that is earned based on a subjective decision of the business.
• Option 2: Keep the employees’ salary under $47,476 and pay overtime for hours worked over 40 per week. Under this option, a business can keep an exempt employee’s salary below the new minimum, but must pay overtime (time-and-a-half of the employee’s “regular rate” of pay) for actual hours worked over 40 per week. By way of example, if the employee’s weekly salary is $673.08 ($35,000/year), the employee’s “regular rate” is $16.83/hour. The business would have to pay the employee $25.24/hour for all hours worked over 40 per week. Note that this option requires the business to begin tracking these employees’ hours. This option is generally not favored by businesses given the high number of hours most Managers and Assistant Mangers work. Other options are available if the employee’s hours fluctuate each week which permit the business to pay half-time for hours worked over 40 per week rather than time-and-a-half. If this situation is applicable, consult counsel to make sure all requirements are met to take advantage of this option.
• Option 3: Begin paying these currently exempt employees an hourly rate and overtime just as current, non-exempt hourly employees are paid. Note that this option also requires the business to begin tracking these employees’ hours.⎖⎖
If you have further questions regarding the salary basis change, or for advice on creating pay practices that comply with the law and avoid costly litigation, please contact Eric Magnus at Jackson Lewis, P.C. He can be reached at 404-525-8200.
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