New Overtime Regulations: What Small Businesses Need to Know

On December 1, 2016 new federal overtime regulations take effect, making about 4.2 million more U.S. workers eligible for overtime pay. Currently, only salaried workers earning less than $23,660 per year are eligible under federal regulations for time-and-a-half pay when they exceed 40 work hours in a week. Under the new rules, non-exempt workers earning less than $47,476 per year are eligible for overtime pay, when they work more than 40 hours. The rule change is intended to have several effects, including:
  • More take-home pay for middle-class families
  • A greater work-life balance
  • Job creation (because employers that previously counted on salaried workers to exceed 40 hours per week may decide to hire additional staff, rather than pay time-and-a-half to existing workers).
The new overtime regulations will create some logistical headaches for business owners.

Options for Salaried Employees

Businesses may have to make adjustments to accommodate the new overtime regulations. If, for example, you have employees who earn less than $47,476 per year but who regularly work more than 40 hours per week, your options include:
  • Paying them overtime
  • Increasing their pay to above $47,476, making them ineligible for overtime pay
  • Limiting their hours to 40 per week and hiring additional workers to make up for the loss of previous overtime hours per person
  • Moving salaried workers to an hourly status, in order to facilitate a reduction in fringe benefits equal to the employer’s cost of increasing overtime pay
  • Reducing benefits packages across the board, to account for increases in overtime pay.
The new regulations say that non-discretionary perks like commissions or bonuses do count toward an employee’s overall compensation, so if those qualified “extras” put an employee above the threshold of $47,476, he or she would be ineligible for overtime.

Other Considerations

Working overtime on occasions may be a necessity, but routinely working 50 or 60-hour weeks is known to be associated with employee burnout, low morale, a decline in an employee’s quality of work, and high turnover. If you intend to pay your salaried workers overtime beginning December 1, you may be able to provide some additional perks that prevent burnout and other problems related to working too many hours. Some companies offset demands on their employees by increasing the number of paid vacation days, providing meals for workers who stay late at the office to finish a project, or offering non-traditional benefits, such as paid gym memberships.

Hiring Workers

Reducing pay for existing employees to offset overtime costs, or moving salaried workers to an hourly status are two strategies that could have negative consequences. Employees may feel they’re being demoted, or they may worry that their employer is experiencing financial difficulties. Hiring additional workers may be a better solution. When you hire new employees, you can choose whether they’re salaried or hourly. Employees are permitted by federal law to discuss with each other their pay rate, so if you intend to pay a new hire less than existing employees, you may wish to change the job description and remove some of its responsibilities before hiring anyone to fill that role. Disparity in pay is one reason why employees become dissatisfied with or quit their jobs. Lusk Law, LLC, specializes in assisting small business owners, helping them prepare for and react to regulatory changes and to avoid litigation when possible. Our experienced attorneys have provided legal counsel and representation to business owners in Maryland, Virginia and the District of Columbia. Please call us at 443-535-9715 or fill out our contact form if you have any questions about this topic.