To understand how this might impact your business, you need to understand the distinction between exempt and non-exempt employees. Under the current “primary duty” test, this classification depends on the employees’ job description. Generally, exempt employees earn over $23,600 annually, have managerial or supervisory roles, and are not entitled to overtime pay. Non-exempt employees do not have those responsibilities, are paid hourly, but earn overtime pay at time and a half for hours worked in excess of 40 hours weekly. Because employers can also find it difficult to determine whether employees are exempt or not under the “primary duty” test, there is an ongoing discussion about whether that standard will be clarified.
Under the new regulations, exempt employees who are paid less than $50,440 annually will be entitled to overtime pay at time and a half when they work more than 40 hours per week. Businesses need to prepare for these changes by identifying exempt employees earning less than $50,440 and developing a plan for overtime compliance. Businesses need to assess the impact of either:
(1) raising salaries above $50,440 to avoid overtime obligations; or
(2) paying overtime for hours worked in excess of a 40 hour week.
For each employee, a business will need to assess what makes economic sense. Can the business afford to raise salaries now and to sustain those raises if the $50,440 threshold rises in the future, making the salary threshold requirement higher? Alternatively, if the company limits overtime work as a budgeting measure, could that impact the quality of client service and hurt the business in the long run? Faced with these difficult choices, a business could hire more part-time employees or outsource work to independent contractors. Each of these options, and the costs and consequences of them, must be assessed.
Savvy businesses need to inform employees no matter the route they take. In-person meetings followed by written materials documenting the changes and reasons for them are recommended. For hourly employees, the company must stress that all time should be recorded and employees will not be permitted to “volunteer” time to the company. It is important to convey that employee time is valuable and that employees are not expected or permitted to accept less money for the same amount of work. With the potential for increased employee costs, these are important issues to keep on your radar.
Elizabeth A. Livingston is a Senior Associate of Griesing Law, LLC, where she represents a wide range of clients from public and privately held corporations to government entities to small businesses and nonprofit organizations. You can reach her at (215) 501-7845 or email@example.com.
Published (and copyrighted) in Philly Biz, Volume 1, Issue 3 (February, 2016).
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