This past summer, the Department of Labor announced new overtime rules that will affect millions of people, making them eligible for overtime pay. In the past, in order to be considered exempt from overtime — in addition to meeting rules such as managing two or more people, working independently in a professional job or being in outside sales — you had to earn a minimum of $455 a week. The new rules change that salary minimum to $970 per week. That’s a huge difference.
The rules are not final yet, so no one can say definitively what will happen, but here are some questions to think about as your business prepares for this shift.
Who Will Be Affected?
Almost all employees who earn less than $970 a week and are currently exempt will now be eligible for overtime under the new overtime rules. There are some exceptions, such as schoolteachers, but they are few and far between. Pretty much all businesses should count on being subject to this new rule.
Other Than Pay, What Difference Does It Make?
It’s not just a change in how people are paid; it requires them to modify how they work. For instance, let’s say you have an exempt employee who currently earns $40,000. She often checks email from home, and when there’s a problem on the night shift, she gets a phone call asking for help.
She’s an exempt employee, so this is fine. If the rule passes, however, she’ll be a nonexempt employee. That means she’ll have to track the time she spends checking email or answering phone calls, and she’ll have to be paid for that time, including overtime. (Some states require overtime pay when someone works more than eight hours in a single day, regardless of whether they’ve worked more than 40 hours during the week.)
Note, though, that this change won’t have any effect on health care or other benefits.
How Should You Calculate the New Hourly Rate?
That’s up to you. The only thing the law requires is that the employee in question receives minimum wage. If your exempt employee regularly works 40 hours a week, simply divide the current weekly salary by 40, and that’s the hourly rate. If the person regularly works more than 40 hours, you’ll have to take into consideration the expected overtime. Be careful to calculate correctly, because otherwise you’ll inadvertently give your employee a huge raise.
At the same time, you want to treat your employees fairly. Don’t adjust pay the same way for everyone; instead, treat the issue on an case-by-case basis, taking into account their salary, their value to your business and their flexibility.
Above all, remember to communicate with your employees. When (or if) this regulation goes into effect, you’ll have to formally notify them about their new pay (if applicable), the new requirements to track their hours and the need to not work off the clock. In the end, while you’ll have to make some adjustments to avoid paying overtime based on these new rules, you can rest easier knowing that your workforce is achieving better work-life balance.
Suzanne Lucas spent 10 years in corporate human resources, where she interviewed and hired employees, managed the numbers, and double-checked with the lawyers. Her writings have appeared in Inc. Magazine, CBS MoneyWatch, US News, Readers Digest and other publications. She focuses on helping businesses nurture great employees and helping employees enjoy great careers.