How to Prepare Your Company and Team for New Federal Overtime Laws

IMPORTANT UPDATE: A judge recently blocked the new federal overtime rule. We’ll keep you updated as the news unfolds.

As of December 1st, 2016, some big changes are afoot for federal overtime laws that will affect more than four million US workers. Effective December 1, 2016, full-time employees who earn under $47,476 a year are considered non-exempt and are entitled to overtime pay and minimum wage. Previously, the overtime threshold for white-collar exemptions sat at $23,600 per year.

Ensuring that you follow all the rules set forth in the Fair Labor Standards Act (FLSA) takes vigilance and care, and is a necessary practice in order to stay compliant. Doing so will secure both the safety of the company and the overall wellbeing of your employees.

Update: We've made an easy PowerPoint presentation you can show to your team to explain the new laws. Download it for free here.

Not up-to-date on the new salary threshold or what exempt and non-exempt employees are? We have some resources to give you a general background:

• What to Know About the New Federal Overtime Ruling

• A Simple Guide to Exempt vs Non-Exempt Employees

Once you’re primed on that, here are six actions to consider taking that will help you prepare and handle for the upcoming changes.

Consult Legal Counsel

Classifying employees as exempt or non-exempt isn’t cut and dry. Generally, employees must pass three different tests to be exempt from FLSA overtime pay and minimum wage laws: a salary basis test, a salary level test, and a job duties test for the employee’s respective job category.

Combine the classification process with varying state and local laws that make further regulations on overtime pay and hours, and you’ll see it’s a smart idea to consult legal counsel.

Doing so will help protect your company and ensure you know the correct overtime rules and FLSA status for your employees.

Conduct an Internal Review

Take the time to review all your internal employee classifications.

By doing so, you can parse out which employees will be affected come December 1st. Knowing which employees are considered exempt or non-exempt as currently defined by the FLSA will help align your company with Department of Labor laws and state wage enforcement agencies.

In order to determine if you have an exempt employee, your review should focus on four key points:

• Salary Basis Test - Is your employee paid a fixed salary?

• Salary Level Test - Does the employee’s salary meet the new minimum?

• Duties Test - Does the employee perform all job duties required for the respective job category?

• Additional State Laws - Have you checked your state’s laws regarding hours worked and overtime pay?

Make Necessary Adjustments

Now that you’ve reviewed all internal employee classifications, you may need to make some crucial decisions about employees who were once exempt but no longer qualify because they earn under $913 a week, or $47,476 a year.

Here are three options you can decide between if your employees no longer meet the salary level tests and are no longer exempt:

• Increase Salaries - If an employee meets both the salary basis test and the duties test for her respective occupation but does not meet the salary minimum threshold of $913 a week, you may want to increase her salary level to cross the exempt threshold. You may decide to do so if you don’t want to worry about an employee logging hours and want to keep her at a steady salaried rate regardless of hours worked.

• Pay Overtime Hours - If your employee no longer meets the salary minimum threshold of $913 a week and you don’t want to increase her salary level, you may make the choice to pay her for overtime instead of increasing her salary. By federal law, that means paying 1.5x her hourly rate for every hour worked over 40 in a workweek. Keep in mind that some states have different overtime hour laws and rates.

• Redistribute Workloads - If your employees no longer meets the salary minimum threshold of $913 and you aren’t prepared to increase salaries or pay overtime hours, you may have the option to redistribute work hours and workloads proportionately. That means shifting around people’s schedules to ensure non-exempt employees work fewer than 40 hours a week and don’t require overtime pay.

No one option is right for every company, and this list isn’t all-encompassing. Whether you decide to increase salaries or redistribute workloads will largely depend on the nature of your company and work, your budgetary constrictions, and the needs of your employees.

Train Your Team

These laws are nuanced and confusing, but it’s important your employees have a base understanding of what exempt and non-exempt mean, along with the new overtime rules. They’ll appreciate the fact that you’re keeping them in the loop.

Most importantly, they’ll understand why your company may make certain adjustments around their hours, salaries, or workloads in light of the new federal overtime laws.

We’ve created a video you can show your employees that gives a basic overview of these concepts. If you’d like to present the video’s content to your teams, you can also download these slides along with a script. Alternatively, you can offer employees some reading on the topic or direct them to the Department of Labor website.

Use Smart Tools

You might work with a wide variety of workers, from exempt and non-exempt to salaried, hourly, and contractors. Do you have modern tools that will help you out with the new overtime policy?

Seek out a comprehensive but easy-to-use digital platform, like Justworks, that helps you stay compliant and manage your employees’ regular and overtime hours. It’s just another step towards staying compliant and keeping your business running safely and efficiently.

Rinse and Repeat

Classifying employees is not a “set it and forget it” practice. Consider conducting an annual review to make sure you’re complying with shifting state and federal laws around employee classification, overtime pay, and minimum wage.

As Justworks CEO Isaac Oates has put it, “At the end of the day, not paying attention to the ever-changing laws around compliance is the biggest risk you can take for your business.”