By now you’ve likely heard of new provisions made to the Fair Labor Standards Act (FLSA). If you’ve somehow missed it, the major change that has many small businesses on edge is the increase in minimum requirements for overtime pay.
Previously, certain salaried employees making more than $455 a week or $23,660 a year were exempt from overtime pay, regardless of how many hours were worked that week.
The changes, which go into effect December 1, 2016, have now bumped that cut-off to a significantly higher bracket; $913 a week or $47,476 a year. Just like before, not every salaried worker making that amount will automatically qualify for overtime pay, however. So, how do you know if you’re affected?
Exemptions still apply for those whose duties are primarily “executive, administrative, or professional.” To help you determine if your employees fall under these exemptions, the US Department of Labor has published a duties test. The current sheet reflects the old salaries, but the exemptions have remained the same.
Here’s a quick rundown of the exemptions. We’re not lawyers, so as always, consult your HR and legal teams before making any major decisions and changes.
Exemptions for Executive duties
- The employee has to make at least $913 a week and considered salaried.
- The primary duty of the employee has to be managerial. Whether it’s managing the entire business or smaller, but recognized, departments or subdivisions of the business.
- The employee must be in a position to direct at least two other full-time employees regularly.
- The employee has to be able to make hiring and firing decisions, or at least have their recommendations hold considerable weight with the decision maker.
Exemptions for Administrative duties
- The employee has to meet the salary requirements of $913 a week or higher.
- The employee’s primary duty has to be directly related to business operations.
- The employee must be trusted to exercise their own judgement and discretion on significant operational decisions.
Exemptions for Learned Professionals
- The same salary requirements apply (no less than $913 a week).
- The employee’s primary duty must be considered intellectual in character and require advanced knowledge.
- Their advanced knowledge must be in a science or learning field.
- Their knowledge had to be acquired through prolonged specialized intellectual instruction (i.e. university)
Exemptions for Creative Professionals
- Must meet the salary requirements
- The employee’s primary duty must require invention, imagination, originality, or talent in an artistic or creative field.
Does your business gross over $500,000 a year?
Most smaller businesses that fall beneath that earnings cut-off will be exempt from these changes. However, just because your entire business is exempt, doesn’t necessarily mean some of your employees won’t qualify for individual coverage. There is also a clause that states some individuals may still be covered in businesses grossing under $500,000 each year, depending on their involvement with “production of goods for interstate commerce.” If that sounds a bit convoluted to you, you’re not alone. We’re not lawyers, so you’ll want to consult your legal team for more information on how that clause affects you.
There may be a few more exemptions available to you, so we recommend reading through the US Department of Labor’s FAQ with your legal team to make sure you're complaint before December 1, 2016.
Making the necessary changes to ensure you’re complying with the new laws may take a few months to implement, so get started with your legal and HR teams right away to see what applies to your business.
What do you think of the new overtime laws? Share in the comments below!