Last Updated: Jan 5, 2017
The new overtime rule is about to go into effect. Many small businesses that never had to worry about nonexempt employees will now be faced with the issue. Is your business prepared? Here’s what you need to know about the new overtime exemption rules.

Big company, small company, lots of employees, or one employee, your HR load is about to ramp up. That’s because new overtime regulations take effect on December 1, 2016. For any employee that makes less than $47,476 per year, they can no longer be labeled as exempt from overtime. More bluntly—if you have anybody working for you below that pay threshold, you probably have to pay them overtime after 40 hours of work.

Let’s jump back for a moment and explain a few of the not-so-clear laws that you as a business must comply with if you hire employees. If you’re looking for some light reading to cure your nighttime bout with insomnia look no further than the Fair Labor Standards Act or FLSA. This is the set of laws that governs how you pay your employees.

It includes things like minimum wage, the fact that you have to pay workers on a regular payday, and all of those deductions that you take from your employees’ checks.

The FLSA does not cover things like vacation, holiday, sick or severance pay, holiday hours, special weekend wages, fringe benefits or discharge practices. All of these items are covered in your employment contract.

RELATED: New Overtime Rule’s Effect on Small Businesses

And yes, the FLSA does dictate overtime pay. In the past, if your employees were hourly, (also called non-exempt) you had to pay overtime pay for more than 40 hours of work. But there were exceptions to this overtime pay rule. You could be an exempt employee if you were a teacher or an administrator in a school, outside sales rep, and certain computer related occupations. Seasonal employees like fisherman, newspaper delivery workers, some farmworkers, and babysitters or people who cared for the elderly in a casual capacity. Finally, if you were paid less than $23,660 you could not be considered exempt. There were all kinds of workarounds employers could use to classify employees as exempt but now, the pay threshold overshadows almost all of those workarounds.

There are many more highly complicated rules for designating employees as exempt or non-exempt that haven’t changed but the pay threshold more than doubling from $23k to $47,476 means back to hourly wages rather than a salary—something that has traditionally meant a more professional status.

What does the change look like in more practical terms? First, back to the days of timecards. The modern day equivalent are online platforms that allow for clocking in and out on a mobile app but the idea is the same. Your employees have to be detailed with it. If they worked until 11:30 at night getting ready for a sales call the next morning, they have to clock the hours. If they took 45 minutes for lunch, they have to clock it. If they don’t, you are in violation of the law. If they reach their 40 hours on Thursday, they can’t work Friday unless you pay for the overtime.

Second, if you’re like most small businesses, you allow your employees to work irregular hours as long as they get their work done with excellence and on time. Under the new system, the more employees you have, the harder it will be to allow them to come and go as needed. You’ll likely find it easier to hold them to set hours.

Along the same lines, you’ll probably be less enthusiastic about telecommuting. When hours weren’t tracked you weren’t as concerned about the amount of work they got done in an hour because if they’re working from home, they’ll work until the project is done.

Not under the new system. Now, every hour is important because you have to pay overtime even if they aren’t as productive a certain day.

How Will You Pay Overtime?

Employees’ gut reaction was to be excited about the change but there’s a problem. They’re not going to be paid for overtime; they just won’t get it because businesses don’t have the extra money. The National Retail Federation said the same thing in a press release. If that’s you, you will likely feel the push to micromanage more so employees get more done in the 40 hours they have each week.

No Special Deals

Under FSLA, some things you can negotiate but you can’t skirt the new regulations by negotiating with your employees. There’s a workaround, of course. If you have an employee that’s close to the $47,476 threshold that regularly works overtime, give them a raise. The pay bump might be cheaper than paying overtime hours or hiring another employee to take on their overtime workload.

The Ironic Part

If all of these new rules have you a little down in the dumps, there’s a bit of irony to it. Congress, made up of the people who passed the law, might have forgotten that many of their employees are working a huge amount of overtime hours without pay. They, too, will fall under the new rules and most Congressional offices don’t have the money to compensate their staffers. And some Congressmen aren’t too happy about it.

Congress is allowed to exempt themselves from the rule but even they know that doing so could be political suicide.

What’s not funny is that many Congressional workers are young budding politicians themselves who are willing to work the extra hours to get a career boost. Under the new laws, that won’t be easy to do anymore.

The law isn’t likely to change before going into effect so start putting together a strategy that works for your business. And if you’re a sole proprietorship, celebrate because none of this applies to you.

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