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You knew it was coming and now it's here. The Obama administration announced the long anticipated expansion of overtime requirements last month. Under the proposed new rules, millions of white collar workers, previously exempt, will now qualify for overtime pay when they work more than 40 hours a week.
The new white collar overtime rules are expected to come into effect in 2016. In-house legal departments should start preparing for the change now.
Who Will Be Covered Under the New Rules?
For decades, overtime rules have remained largely unchanged. The last time in-house counsel had to think about major overtime changes to the Fair Labor Standards Act was in 1975. After 40 years of stagnation, which saw the amount of workers who qualified for overtime pay drop from 60 percent of the workforce to just eight percent, those rules have finally been updated.
Under the FLSA rules proposed by the Department of Labor, millions more workers will qualify for overtime pay. Currently, any worker earning more than $23,660 a year is exempt from overtime requirements. Starting in 2016, that threshold will more than double, rising to $50,440.
Three Ways to Prepare
While the effect of the rule may be especially pronounced in the retail and food services sector, where hours and overtime are more unpredictable, companies of all stripes will need to prepare for the change.
The first step is to make sure your company knows how many hours are actually being worked. If your company has not been tracking the work hours of salaried employees, it could be blindsided if those employees are typically working 50 hours a week, unbeknownst to supervisors.
The second step is to consider raises. If some employees' income hovers just near the threshold, a small raise can tip that over into the exempt zone. That employee working 50 hours a week? If she makes $48,000, giving her a $3,000 raise could save the company thousands in overtime pay. If she makes $30,000, it might be smarter simply to limit her hours.
Finally, in-house counsel will want to ensure that their wage and hour systems are in place, functional and ready to be expanded. Having an accurate way to track and control hours is one of the most effective ways to anticipate and cut costs -- and to avoid costly litigation over back pay and unpaid overtime.