On May 19, 2016, the Obama administration, along with the Department of Labor, finalized details regarding the new\u00a0overtime pay reform\u00a0bill. This reform has been in the making since 2014 when President Obama signed an executive order requiring the Department to overhaul current overtime pay laws.<\/p>\n
This new rule will be active and enforceable as of December 1, 2016. Once this rule takes effect, a projected 4.2 million additional American workers will be eligible for overtime.<\/p>\n
To understand how this may affect your small business, it\u2019s worth exploring the history of our country\u2019s labor and overtime laws, as well as what changes this reform with bring.<\/p>\n
During the height of the Great Depression, employers treated their workers poorly, thus ushering in the passage of the\u00a0Fair Labor and Standards Act (FLSA)<\/a>\u00a0of 1938 that:<\/p>\n Providing the impetus for the FLSA was the desire to prevent employees from being exploited. However, due to business flexibility necessities, the FLSA created exempt and non-exempt status for certain employees.<\/p>\n Salaried administrative, professional, and executive employees\u2014along with many technology and outside sales employees\u2014are exempt from overtime requirements, largely due to their already quite high salaries. Thus, whereas these exempt employees are not entitled to overtime pay, they must meet certain criteria regarding their responsibilities and wages.<\/p>\n Conversely, non-exempt employees are covered by FLSA and must be paid at least minimum wage and receive overtime pay at the rate of one-and-a-half times their regular pay for working over 40 hours in any given week.<\/p>\n Whereas FLSA overtime rules protected nearly 62 percent of full-time employees in 1975, this number dwindled to a measly eight percent over the years. The largest offenders were employers who reclassified some employees as \u201cmanagers\u201d and \u201csupervisors\u201d in lower paying retail and fast food jobs. These employees regularly worked over 40 hours per week without receiving additional pay.<\/p>\n First, the\u00a0wage threshold\u00a0will be officially set at $47,476. This means that any salaried, hourly, lower-wage, and non-managerial employee who earns less than this amount must receive one-and-a-half times his\/her regular wage for any hours in excess of 40, worked in one week. Before this rule went into effect, the threshold amount was only $23,360 per year. This reform will affect nearly 4.2 million American workers who will qualify for overtime.<\/p>\n Every three years, this wage threshold will undergo adjustment to maintain the US\u2019s effective coverage rate at 40 percent. Preliminary projections suggest the threshold will increase to $51,000 at its first adjustment on January 1, 2020. Reasons for this adjustment are to ensure ongoing attention regarding inflation and to prevent another significant gap between reforms.<\/p>\n Finally, employers\u2019 use of commissions and non-discretionary bonuses may comprise only up to ten percent of an employee\u2019s salary level.<\/p>\n As mentioned, this reform will increase the percentage of employees affected by overtime laws from eight percent to 40 percent, thus requiring all businesses to pay their employees based on their overtime hours. This additional cost is estimated at roughly $2,400 per year per employee.<\/p>\n A recent\u00a0USA Today<\/em><\/a>\u00a0article lists compliance options for small businesses. Among them are:<\/p>\n Experts assert that ensuring quality employees are kept, that morale is high, and that the business can handle the extra costs are the three most important factors to consider.<\/p>\n\n
An Overview of the New Rules<\/h2>\n
How This Rule Affects Small Businesses<\/h2>\n
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