You know that “exempt” or “nonexempt” box that you have to check when hiring a new employee? Well, that little box is about to get a major overhaul. The House and the President are currently arguing about the Final Rule and whether new overtime laws will go into effect this December.
What is the New Overtime Law?
On March 13, 2014, President Barack Obama issues a memorandum instructing the Secretary of Labor to “to propose revisions to modernize and streamline the existing overtime regulations”.
In doing so, the Fair Labor Standards Act (FLSA) proposed an increase in the overtime allotments meaning that nearly 11 million Americans will qualify for overtime. Under the current rules, 7 million Americans (those earning $23,660 or less) are eligible for OT. With the new law, an additional 4 million people (those earning between $23,661 and $47,476 annually) will also qualify. The law also states that the qualifications for OT will be revised and updated every three years.
The House votes to block New Overtime Laws
On September 28, 2016, the House voted 246-177 to postpone the Final Rule for six months. The act is currently scheduled to take effect December 1, 2016, but would be moved to June 1, 2017.
In regards to H.R. 6094 – the bill referred to as the Regulatory Relief for Small Businesses, Schools, and Nonprofits Act – many businesses are upset.
Last week, more than 50 business groups, including the U.S. Chamber of Commerce, National Retail Federation and National Federation of Independent Business (NFIB), filed suit in federal court to block changes to the Overtime Rule. The coalition filed its case in United States District Court for the Eastern District of Texas. Twenty-one states have also filed a lawsuit challenging the rule claiming that “the rule will cause significant economic harm to both employers and employees.”
What Do the New Overtime Laws Mean for Your Business?
The ruling will be significant to almost every business with salaried employees – that means your Phoenix payroll. According to the Department of Labor, “Employers have a range of options for responding to the updated standard salary level.”
We will translate these for you.
Note that the DOL’s definition is in bold and our translation is in italics.
For each affected employee newly entitled to overtime pay, employers may:
- increase the salary of an employee who meets the duties test to at least the new salary level to retain his or her exempt status. (In order to avoid paying overtime, increase salary levels to a minimum of $47,477.)
- pay an overtime premium of one and a half times the employee’s regular rate of pay for any overtime hours worked (If you choose not to increase the salary level to $47,477, you must pay overtime when the employee exceeds 40 hours/week at a rate of 1.5 x their normal hourly rate.)
- reduce or eliminate overtime hours (Monitor your employee’s hours so he or she does not exceed 40/week).
- reduce the amount of pay allocated to base salary -provided that the employee still earns at least the applicable hourly minimum wage – and add pay to account for overtime for hours worked over 40 in the workweek, to hold total weekly pay constant (reduce your employee’ hourly rate to compensate for the overtime you must pay them, essentially not changing their pay)
- use some combination of these responses (use any combination of these responses)
What should Your Phoenix Business Do?
So what does this all mean to employers? Well, it means that your pay structure will change in some way; either you will be paying your employees more money either in salary or overtime, or you will decrease their pay and pay them overtime in hopes of keeping their current paycheck the same amount. Either way, it’s going to get complicated.
And even though the House has successfully passed HR6094, rumors are circling the President will veto it, that is assuming the Senate doesn’t kill it first. Therefore, we recommend that businesses prepare to implement this new ruling on December 1, 2016. If it gets postponed, great, but if not, you’ll want to be ready.
If you need help putting together a game plan to best handle these new overtime laws, get a hold of our Phoenix payroll experts at PayTech. Our team is proficiently trained on the nuances of this and other payroll and tax laws. We study the ins and outs of legislation making sure that our clients not only adhere to the laws but that they exercise the options that work best for their companies. We know you have enough stress on your plate as it is, so let us walk you through these changes and help you keep your business running in a positive direction.