Running Your Business

The New FLSA Overtime Requirements: What They Mean for Your Business

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Posted by August 30, 2016

The Department of Labor has made a major change to the Fair Labor Standards Act (FLSA) overtime requirements. Starting on December 1, 2016, more than four million additional workers will be eligible for overtime pay. It’s crucial that you understand what this new ruling means for your business so you can adjust to the new regulations without hurting either your bottom line or employee morale.

The New FLSA Overtime Requirements

The FLSA specifies when employers must pay their workers for overtime hours. Typically, if an employee works more than 40 hours in one week, they must be paid 1.5 times their hourly rate for every additional hour over 40.

However, there are exceptions that can affect employee eligibility for overtime pay. A major one is that, if an employee earns a minimum set salary and works in a managerial, administrative or professional role, they can be exempt from earning overtime. No matter how many hours they work, these employees are not eligible to receive any additional pay beyond their regular salary.

The new FLSA overtime requirements have greatly increased the salary limit for exempt workers. Previously, all employees earning more than $23,660 a year were exempt from overtime pay. Now, employees have to earn at least $47,476 a year to be exempt. As a result, the number of employees at your company who are eligible for overtime pay may increase, which could greatly affect your budget.

Managing the New FLSA Overtime Requirements

Fortunately, there are options for your company to comply with the new regulations. Here are a few considerations to help you start thinking about your employee futures while protecting your bottom line.

Cap Workers’ Hours

If you limit your employees to working 40 hours per week, you will not have to pay extra for overtime. If your current employees cannot handle their workloads without working additional hours, it may make sense to hire new employees rather than allowing your existing employees to work overtime. That way, all your employees will earn your standard hourly rate, not the time-and-a-half overtime rate.

Increase Salaries to the Threshold

Under the new FLSA overtime requirements, employees who earn more than $47,476 a year are exempt from earning overtime. If you have any employees earning close to $47,476, it may be more cost-effective to increase their salaries to the threshold amount rather than paying them extra for their hours of overtime.

Pay Overtime

If your employees very rarely work overtime, it may make the most sense to simply pay them for the occasional overtime hours. However, you will need to track your employees’ hours closely to make sure that all overtime is compensated. Otherwise, if an employee works uncompensated overtime they could sue you for unpaid wages.

Rework Employee Compensation

To keep your costs from going up, you could also rework your employees’ compensation to account for overtime. For example, if you have a salaried manager who typically works 50 hours each week and their pay breaks down to $550 per week, you could adjust their compensation and make them an hourly worker who is paid $10 an hour. This way, the employee will still make $550 each week ((40 hours x $10) + (10 hours x $15) = $550).

Finding the Right Solution for Your Business

There is no magic, one-size-fits-all approach to adjusting to the new FLSA requirements, and every solution comes with a compromise.

The FLSA standards are going to take some getting used to, but by keeping these strategies in mind, you’ll be able to adjust to the new regulations, protect your bottom line and maintain employee morale.

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