New DOL rules for businesses with employees earning $47,476 or less
If you don’t currently track the number of hours your salaried employees work, you may want to begin doing so now. That’s because salaried employees earning $47,476 or less will no longer be exempt from overtime pay. Regulations passed last month by the Department of Labor increased the salary threshold for overtime exemption from $23,600 (set in 1975) to $47,476 (or $913 a week). To ensure it doesn’t become outdated (an annual salary of $23,600 is actually below the poverty line in today’s society) the salary threshold will increase automatically every three years.
To comply with the new rules, employers must collect accurate hourly data and have a clear audit trail for the hours their employees have worked. Salaried employees who are below the new threshold must be paid for any overtime hours worked. If you don’t follow the new regulations, your employees could report you and the DOL will audit your business.
Consider these three options:
- First, you may want to raise salaries to the exemption threshold. Of course, if you raise an employee’s annual salary to $47,476, you’ll be automatically increasing your operating costs for just that one employee.
- If increasing salaries isn’t an option, you may want to reclassify affected employees and not limit overtime. You should, however, understand the exact number of hours your employees are working to make sure you’ve set their new pay structure appropriately.
- Finally, you can choose to just reclassify affected employees and prohibit overtime without prior authorization. This will reduce the number of hours your employees work. It may initially be viewed as a benefit, but could also mean that affected employees can’t accomplish the same amount of work for the business.
Bottom line: if you don’t currently track the number of hours your salaried employees work, you should begin doing so immediately. The new regulations become effective December 1, 2016. Talk to your CPA before making any final decisions.
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