A Common Misconception about the New Overtime Rules

With December 1 rapidly approaching, it is worth readdressing one of the most common misconceptions with the new overtime rule: Is an employer required to raise the salary of all of its currently exempt employees to $47,476 if they regularly work overtime hours and the employer wants them to continue doing so? No! There are several ways to comply with the new rule without raising compensation for currently exempt employees, which we discussed in an earlier article. For example:

An employee who currently works 45 hours weekly and receives $30,000 annually, or about $577 weekly, would no longer satisfy the salary requirement to be exempt from overtime under the new rule. Rather than raising this salary to $47,476, the employer could pay this employee an hourly rate of $12.20. This works out to about the same compensation as the employee currently receives, and the employer is in compliance with the new rule:

40 hours x $12.20 (regular hourly rate) + 5 overtime hours x $18.30 (1.5 x $12.20) = $579.50 weekly compensation, or $30,134 annual compensation.

The FLSA does not require employers to use a timeclock to keep track of employee time, nor are employees required to sign in and out whenever they start and stop working. Instead, an employer may agree with his or her employees on a regular weekly schedule. In that case, employees only need to report when they work more or less hours than scheduled. This way, employers can employ workers who regularly work over 40 hours without the need to implement a new timekeeping system – self-reporting of hours by employees is permitted under the FLSA. However, if the employee’s overtime hours are on a more infrequent, not regularly scheduled basis, it is safer to have a more formal, employer-controlled timekeeping system.

Because the new rule takes effect on a Thursday (December 1), we recommend that employers who plan on changing compensation from salary to hourly to comply with the new rule implement this change at the beginning of the week or pay period under which December 1 falls.

The attorneys at Nauman Smith can help you understand how the new overtime rules apply to your employees, and we will continue to keep you informed in the coming weeks with practical information on how to comply with the new rules.

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