The overtime rule that could cost you thousands

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How could more overtime affect your business?

Starting Dec. 1, the minimum salary for overtime-exempt employees must be $47,476 – twice the current minimum. That means that in just two months anyone who currently earns a salary below that will be eligible for overtime pay when they log more than 40 hours a week on the job.

While you do have to figure out what to do, you don’t have to panic.

At the Outdoor Industry Association’s Rendezvous Wednesday, in Denver, Lori Kleiman, president of HR Topics, explained that there are many options available to employers that don’t result in suddenly having to dole out $5,000 or $10,000 raises, or paying tens of thousands of dollars in overtime.

Employees who are already getting paid for hours they work over 40, for example, are not affected by the change, which is for salaried, overtime-exempt employees only.

“Anyone who is working (and getting paid for) overtime today, is not going to cost your company 5 cents,” Kleiman said Thursday in an interview. “The overtime law, per se, doesn’t change. Where I think retailers have a really big issue is with their managers, who might not make that threshold and are now going to be entitled to overtime.”

The most important thing in the short term is to get a handle on how exactly how many hours your salaried employees are working, as that will play a huge factor in deciding what kind of changes you may have to make.

Doing the math – What are the options?

Say you have a manager salaried at $40,000 a year, and that employee typically works 50 hours a week. If you don’t make any changes, that employee will be eligible for overtime, and you may find yourself paying that employee $55,000 by the end of the year – 40 hours of regular time ($19.23/hour) per week, plus 10 hours of overtime, at 1.5 times the regular hourly rate. In this case, overtime pay is $28.85/hour.

If you know your employee works enough overtime to make more than the new threshold, it may be worth it for you to bump up your employee’s salary to $47,476.

Although it would likely be an unpopular move, you could also build overtime into hourly pay, calculating the hourly rate you would have to pay to reach the same salary assuming a certain number of hours over 40.

At $40,000 and 50 hours a week, for example, the employee’s hourly pay would drop to $13.99 for regular hours, and $20.98 for overtime.

Use the same equation to find the rates for a different salary:

$40,000 (current salary)

divided by

(overtime hours x 1.5 + 40)

Keep in mind that even if you do increase an employee’s salary to the new minimum threshold, they must qualify as an exempt employee if you don't want to have to count hours. Simply calling someone a manager is not enough; the Department of Labor lists five categories of exempt employees with specific requirements. Not understanding the law could cost you big bucks: If an employee complains to the Department of Labor that they’re not being paid overtime when they should be, the DOL can take the employee’s word for how much back pay you owe them, even if there are no written records of how many hours they worked.

How does this new law affect you? We’re interested in hearing your thoughts, and your questions. Email us or comment below to let us know what you think.

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