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Preparing for the New Overtime Rule Change

Monday, August 15, 2016

by Kelly Weaver, Small Business Development Center Regional Director

So you’ve heard about the new overtime rules going into place, right?  If not, the key change to be aware of is a doubling of the salary test from $455 to $913 per week effective December 1, 2016.  How do you go about figuring out what it means for your business?  Here’s a few steps to get you started.

  1. No salaried employees in your business?  No problem.  Keep paying overtime as required; this rule change does not affect you.
  2. If you have any salaried employees that fall below the new threshold salary of $47,476 per year, first review the regulations to confirm that these employees are accurately classified as exempt from overtime.  Exempt employees generally must meet all of the following:
    1. Be salaried, i.e., paid a set salary not subject to reduction because of the quality or quantity of work performed.
    2. Be paid at least a specific salary threshold (this is what is increasing).
    3. Primarily perform executive, administrative, professional, outside sales or computer duties (as defined in the regulations).
  3. If you confirm an employee is exempt and making less than the new salary level, you have the following options:
    1. Increase the salary of the exempt employee to at least the new salary level;
    2. Convert that employee to non-exempt status and pay them on an hourly basis with overtime as necessary for hours worked.
  4. For current salaried employees that will now be subject to overtime, the options would be:
    1. Pay an overtime premium of 1.5 times the employee's regular rate of pay for any overtime hours worked;
    2. Reduce or eliminate overtime hours by potentially balancing workloads or adding new part-time help;
    3. For those employees who regularly work over 40 hours per week, determine an hourly rate that allows the overtime rate to be paid while still keeping the total weekly pay at the current level (be sure the base rate is at or above the required hourly minimum wage); or
    4. Use some combination of the above.

 

As you might guess, dealing with changes to employee wages can be a minefield so it is critical to meet with employees to explain new policies, restrictions and any pay adjustments. Other important steps include collecting appropriate timesheet data from employees, making necessary changes to your payroll system, and reviewing job descriptions and duties to verify compliance with the exemption test.

Extensive materials are available at the US Department of Labor’s Wage and Hour Division website including frequently asked questions, small entity compliance guides and DOL Fact Sheets.  https://www.dol.gov/whd/overtime/final2016/

Each business is going to have unique circumstances regarding this rule change.  After you consider options, it would be wise to confer with your tax accountant or HR professional to be sure final plans are in compliance with the law.   The effective date is December 1 so NOW is the time to do your homework and prepare.

SOURCES:  Chad Weber, Eide Bailly, LLP; US Department of Labor

Kelly Weaver is the Regional Director of the Small Business Development Center in Aberdeen which offers free, confidential business consulting to start up and existing businesses.  She can be reached at (605) 626-2565 or kelly@growsd.org.  The Center is hosted by GROW South Dakota.

Category: GROW SD



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