Employers take notice: a new rule regulating overtime pay is about to take effect.
Last May, the U.S. Department of Labor passed a new overtime law that changed which employees are exempt from overtime pay. Come December 1, the law will make an estimated 4.2 million exempt workers non-exempt.
Currently, employees who make $455 or less per week, or $23,660 per year, are non-exempt employees, meaning employers must pay these workers overtime if they work more than 40 hours in a week. The new overtime rule will significantly increase this threshold — and could have a significant impact on business owners.
Under the new rule, employees making $913 or less per week (or $47,476 per year) must be paid overtime if they work more than 40 hours in a week. This threshold is set to automatically increase every three years based on wage growth.
Rule facing opposition
The new overtime rule has not come without controversy.
Republicans in the House of Representatives have put forth a bill to delay the implementation of the rule. And in September, 21 states filed a lawsuit to block the rule from taking effect.
But business owners opposed to this overtime regulation shouldn’t hold out hope. President Obama has vowed to veto the House bill should it make it to his desk, and most legal experts predict the states’ lawsuit will fail to make an impact before the December 1.
With these facts in mind, business owners should start planning how to address this new rule.
Employer options
Option 1: Increase employee salaries
In order to avoid paying overtime, employers will need to raise employee salaries above the threshold of $47,476 per year. Any employee working more than 40 hours per week that make less than the threshold will get overtime pay.
Option 2: Pay overtime
Employees making less than $47,476 will become nonexempt employees. That means if they work more than 40 hours in a week, employers will need to pay them overtime.