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New overtime law likely to go into effect December 1

One of the most significant changes to federal labor laws in many years will go into effect next month. Overtime pay eligibility will change and the salary threshold limit will change for the first time in 14 years. Exempt employees will need to be paid at least $47,476 or the employer will be required to pay the worker overtime for every hour worked beyond 40 hours per week.

The previous limit for salaried exempt employees had been $23,660, which was $455 per week or $11.37 per hour. The Department of Labor’s Wage and Hour division made the change, as it perceived many employers had been essentially misclassifying employees as being managerial in order to avoid having to pay them overtime.

For employers to comply, they will either have to raise the salaries of exempt employee’s above the $47,476, or they will be required to pay those employees at the rate of time and one-half for their additional hours.

Employers that have been paying employees close to the previous threshold may be forced to strictly limit those employees’ overtime and hire additional workers to cover those hours.

If the employees were in the middle of the pay range, an employer may reclassify them as hourly and structure their hourly rate of pay such that even with overtime, their effective pay remains essentially neutral.

For employees close to the new threshold, increasing their salaries to above the new limit will eliminate overtime pay worries. Employers and their human resource personnel will need to consult with their attorneys and carefully examine their employee classifications and the number of hours their exempt employees work. They can then adjust pay or hours accordingly with the demands of the business and their cost structure.

Compliance, along with meticulous records will be important to prevent any unwarranted claims by employees for overtime. Violations of these rules could be very damaging to the business, as penalties are typically backpay that is twice the amount owed, with interest.