New Overtime Rules

Tuesday, May 31, 2016 15:13
New Overtime Rules

Tags: compensation | employees

Whether you're an employee or an employer, you could be affected by new overtime rules enacted by President Obama and the Department of Labor on May 17, 2016. Officially an update to the Fair Labor Standards Act (FSLA), the new rules will greatly expand the number of employees who qualify for overtime pay.

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As of December 1, 2016, any employee earning a salary of under $47,476 is entitled to 1.5 times base pay for each hour worked in excess of 40 hours per week. The current threshold is $23,660. 

What does this mean? Employers often classify employees with professional or managerial status as "exempt", paying them salaries with no overtime compensation rather than hourly with overtime compensation. As of December, even a high-level employee will be entitled to overtime pay if his or her salary is less than $47,476 per year. Thus, employers of salaried employees earning less than this amount will have three options:

l  Pay overtime compensation 

l  Eliminate overtime

l  Raise salaries above the threshold

In my opinion, professional service firms will be most hard hit. Entry level accountants, attorneys, engineers, etc. are typically salaried and work massive amounts of overtime. These firms rely on the "cheap" labor of new hires. I believe they will get around the new rules by simply ensuring entry level salaries are above the threshold. 

(Please note that opinions expressed are my own and not Morningstar's!)


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