How The New U.S. Overtime Law Will Affect Your Business

Earlier this year, the US Department of Labor announced that new overtime laws are being put into effect in the US that could affect a great deal of businesses. This is great news for lots of Americans (nearly 4.2 million of them, to be exact), as it could mean more money in your wallet if you regularly work overtime but have never been eligible before.

But depending on the business, it could have huge impacts on payroll, scheduling, and hiring in the next few months. Here’s a few things every business owner should know before these rules take effect on December 1, 2016.

How Does Overtime Currently Work?

Overtime is basically insurance that employees aren’t taken advantage of for working too much. Generally, you are paid overtime if you work over 40 hours in a workweek. There are some exceptions, depending on your role and on your pay. For instance, you are exempt from receiving overtime pay if your job falls into a handful of specific categories (fishermen, ski resort workers, criminal investigators, for example… or perhaps some creative combination of all three). If you’re paid a set salary, you are also exempt from overtime if you make over $455 a week.

What’s Changing?

Beginning December 1, 2016, the weekly salary limit is increasing to $913 – nearly double the old limit. Put simply, if you’re a salaried employee making between $450 and $900 a week, you’ll become eligible to start earning overtime pay for every hour you work over 40 hours. This figure is based on current weekly income levels in some of the United States’ poorest regions. It’s important to note that this $913 figure will also be adjusted every three years to keep up with inflation and cost of living increases.

Here’s where it gets even more complicated – whether or not you are exempt from receiving overtime really depends on your job description. The Department of Labor distinguishes between “blue collar” and “white collar” workers, and different rules apply to these two groups. It also depends on your day to day tasks – If you manage a team of employees, having the authority to hire or fire people, or work in the creative sector, you might not be eligible for overtime.

Why Does It Matter, and What Can Businesses Do?

While it’s important to be sure your employees are compensated appropriately for their work, it doesn’t make much sense to be paying overtime pay when you don’t have to. The minimum requirement for overtime pay is currently “time and a half,” or your employee’s regular pay in addition to half the usual rate. This can really add up over time if it’s not a part of your current payroll budget. Below are some tips that businesses might want to consider.

1) First, it’s extremely important to review your employees’ job descriptions and roles to determine whether or not they are eligible for or exempt from overtime pay. The Department of Labor provides a handy test and fact sheets to help employers figure this out. The way these new overtime rules apply can vary greatly, even amongst members of the same department.

For a team of sales representatives working from the office on a standard 40 hour per week schedule are eligible for receiving overtime, whereas traveling salesman (or “regularly engaged away from the office”) aren’t eligible. Thoroughly evaluate and record what roles your employees are playing in your company, and what that could mean for their overtime status.

2) Compensate your employees appropriately. This might mean paying overtime worked, when necessary. For example, it might be worth it if for a short time your team puts in extra hours to land a new high-profile client or contract. Raising salaries over the $913 per week threshold would also exempt your employees from receiving overtime.However, this isn’t so cost-effective if employees only seldom or occasionally put in overtime hours.

3) Invest in smart ways to track of your employees’ schedules and pay. Paying overtime too often could be a sign that your employees are overburdened, or that you’re not managing your employee’s time and schedules as effectively as you could. Consider a scheduling platform like Workly that is intuitive enough to give you a clear picture of when certain employees are departments are working, and when they’re close to reaching overtime eligibility. If your employees are close to working over their normal 40 hours, Workly even allows you to delegate tasks to other members of your team.

Implementing a few, or all, of these steps over the next few months can help prepare you for the updates to the law coming at the end of the year. With a little preparation, managing employee schedules and making the most of your workforce can be a cinch.

Workly is a smart employee management software, which assists you in building schedules and tracking attendance. This blog contains articles that might be of interest to HR and other business professionals.