Prepare Budgets Now for 2016 New Overtime Rules

New rules for overtime pay for salaried (exempt) employees are due to take effect January 1, 2016. The new standard means that all exempt employees who make less than $50,440/year ($970/week) will be eligible for overtime pay when working more than 40 hours per week. The new ruling affects millions of workers, and companies need to prepare or adjust 2016 wage budgets accordingly. The same ruling applies to both for-profit businesses and nonprofit organizations who have an annual dollar volume of sales or business of at least $500,000.

The ruling isn’t final, but is expected to pass. Minimum wage and overtime pay protections related to the Fair Labor Standards Act were last updated in 2004, when the salary threshold for exemption was $23,660/year, or $455/week. On July 6, 2015, the Department of Labor published a Notice of Proposed Rulemaking (NPRM) in the Federal Register (80 FR 38515) and put a deadline on comments for September 4, 2015. An additional provision of the rule is to establish a mechanism for automatically updating the salary and compensation levels going forward to ensure an ongoing test for exemption.

3 Action Steps

  1. Make a list of salaried employees to determine which employees will become eligible for overtime (those who make less than $50,440/year).
  2. Create a policy and procedure for tracking and reporting overtime hours. (Overtime rates are at least time-and-a-half of hourly rates.)
  3. Determine if it is financially necessary to adjust workloads, responsibilities, hours or benefits for affected employees.

There are some exceptions for certain executive, administrative, professional, computer, and outside sales positions. For more information, talk with your Salmon Sims Thomas tax advisor, or refer to the frequently asked questions on the DOL Website.