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Hourly Employees and Wages: Overcoming Overtime Fears

This entry was originally written for our December 2015 Newsletter. Download PDF file to view all articles.

In the United States, the standard work week is 40 hours; but when the deadline for that big project is looming or a client needs special attention, your employees will likely end up working overtime. As an employer, overtime should not terrify you. After all, you want to pay your employees for the work they have performed. But, you also do not want to pay an employee overtime wages when you expected their salary to include overtime work. Many people may not associate salaried employees with overtime pay, but impending changes in federal wage law will make overtime pay for salaried employees much more common.

Overtime applies to more than just hourly workers; salaried workers can also be subject to overtime pay when they do not meet certain exemption criteria. “White Collar” employees are potentially exempt from overtime pay when: (1) the employee is paid a predetermined and fixed salary that cannot be reduced for performance or hours worked; (2) the salary paid meets the minimum amount; and (3) the employee’s job primarily involves executive, administrative, or professional duties. If an employee does not meet all of these criteria, you may be required to pay overtime.

The current minimum salary to qualify for the exemption is $23,660 a year. But a proposed rule will likely push the exemption threshold in 2016 to more than $50,000. Over five million salaried employees are expected to become eligible for overtime compensation as a result of this rule change. The rule will also likely peg the threshold to a certain percentile of the population, meaning it will change regularly. The proposed rule change should dictate a review of salaried employees’ exemption status.

Overtime regulations are more comprehensive than you may realize – overtime pay could apply even if an employee has contracted to work more than 40 hours a week on salary. A non-exempt employee who has contracted to work 50 hours a week is entitled to ten hours of overtime pay a week, which cannot be waived. Not paying for this overtime work could then open your business to a claim for unpaid wages.

Businesses need to stay up to date to avoid potential wage lawsuits, especially with the rising number of wage-related suits being brought under federal wage laws. In 2014, over eight thousand lawsuits were filed under the Fair Labor Standards Act. Businesses can protect themselves by regularly reviewing their wage policies and staying up to date with the evolving law. It is important that you know how the future changes will impact your current and future employees’ exemption status. If you know exactly how much overtime will cost you after the changes, you can plan accordingly.

Future wage disputes can be avoided if employee contracts and promotions are created after consulting with legal experts to determine your employees’ exemption status. When bringing on new hires, make sure that you are aware of upcoming changes to regulations that might affect the exemption status of your new employees later on. How much are you willing to pay given the number of hours you expect your employees to work? Have you factored in other regular salary items and bonuses when figuring their overtime rate? These are all important questions you need to answer ahead of time. After all, when you are in the 11th hour of the big project, you do not have time to worry about your employee’s 45th hour.

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