Working Overtime

This month marks official implementation of the Department of Labor’s revisions to the overtime regulations of the Fair Labor Standards Act. Unlike some federal laws, this “Final Rule” applies to all employers, so even small contractors should ensure they’re in compliance.

What the Final Rule says. Starting Dec. 1, 2016, the salary threshold for executive, administrative, and professional employees who are exempt from overtime pay is rising from $455 per week to $913 per week ($47,476 per year). Salaried employees earning less than the new amount are entitled to overtime pay (time-and-a-half) for hours worked in excess of 40 per week. The Department of Labor will review the threshold salary every three years and may increase it.

Who is affected? The Final Rule affects all employers with previously salaried workers earning more than $23,600 but less than $47,476. As of Dec. 1, those employees must effectively be treated as nonexempt hourly workers, and employers will have to track their hours weekly and pay overtime pay for any hours over 40 worked per week.

Options for compliance. To comply with the Final Rule, employers must either:

Raise salaries for previously exempt employees to $47,476 per year—potentially a good option if an employee’s salary is close to the threshold and he or she often works overtime, or

Track hours for salaried employees who earn under the threshold and pay them the required overtime. This may be a good option if an employee’s pay isn’t close to the threshold salary, or for employees whose salary is close to the threshold but who don’t work much overtime.

Money-saving alternatives. Although employers can reduce or cancel employee benefits—health care, 401(k) matching, etc.—to cover the cost of overtime, such measures may not sit well with employees. Other ways employers are considering to preserve the financial status quo under the Final Rule include:

Restricting employee overtime. Employers can require approval for any overtime work and hire part-time employees as needed to complete the work.

Adjusting salaries. Divide an employee’s salary by the number of hours she works per week, then adjust her base hourly pay. The employee’s base pay will be lower, but she will work the same number of hours, including overtime hours, and therefore receive about the same amount of money each week.