New Federal Overtime Rule: Compliance Tips by Reagan Freed, Solvere HR Consulting

September 19, 2016


Written by Reagan Freed, Solvere HR Consulting

On Dec. 1, 2016, the federal annual salary threshold for employees exempt from overtime pay will double, increasing to $47,476 from $23,660. Salaried employees who make less than the new threshold must be paid time-and-a-half for any hours worked beyond the 40-hour workweek.

Assessing Your Organization

  • Identify the salaried employees in your organization who earn less than the new annual threshold. Estimate how much overtime these employees currently work. Consider conducting a 30- to 60-day time study to gain an accurate understanding of average hours worked.
  • Build a cost model to determine if it is more advantageous to increase base pay to the new minimum, or convert to hourly and pay overtime as it is worked. In instances where there are multiple employees holding the same position, it is strongly recommended that they remain in the same classification (i.e. either all convert to hourly or all remain salaried). This will reduce risk of potential discrimination claims.
  • Take this opportunity to review the job descriptions for these positions and verify the exempt duties test is still being met. Refer to FLSA Exemptions for more information.

Mitigation Strategies

The new overtime requirements will likely put pressure on your bottom line. However, there are solutions available to help you offset those unplanned financial impacts.

  1. Increase base pay to the new minimum threshold and maintain exempt status. This is a quick and easy solution for employees with a small gap between the new minimum threshold and avoids costly overtime rates.
  1. Convert to nonexempt status and pay overtime as worked. Paying a straight hourly rate may be the most cost-effective approach for organizations with dramatic schedule variations, seasonal or peak work periods.
  1. Create a ‘Salaried Nonexempt’ classification. Salaried nonexempt status continues to pay employees on a salaried basis. However, because the salary does not meet the new minimum threshold these employees are still entitled to overtime pay for all hours worked over forty (40) in a workweek.

Consider employing other methods to complement the options above. For example, evaluate each role and job duties independently and move non-critical or administrative tasks to others in the organization. Create part-time roles to absorb these duties and avoid expensive overtime rates. Or retool job responsibilities all together and maximize exempt level positions in your organization.


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