The US Department of Labor overtime rule determines which employees are exempted from overtime. Employers are not under obligation to pay overtime to exempt employees. They are however required to pay employees for any overtime hours worked if the employee is non-exempt.
The country’s new overtime rule is designed to increase the number of non-exempt employees by making 4.2 million exempt workers non-exempt.
This means that businesses are up for an increased number of workers to be paid for every overtime hours worked. Yet the wages paid to non-exempt employees during these overtime hours are typically higher.
All businesses, scale notwithstanding are bound to comply with the new DOL overtime rules which also increases the minimum salary threshold automatically after every three years.
The rule has major effects on employers’ payroll costs in both levels:
- They have to either pay overtime wages to non-exempt employees for working more than 40 hours per week, or;
- Pay employees higher salaries
If you are a small business owner, here are the options you have:
Option 1: Set your employees’ pay below the salary threshold and cap overtime hours
Paying your employees less than the minimum salary threshold makes them nonexempt. That means you’ll have to pay overtime wages to such employees. These overtime wages are at least one and a half times their regular pay.
You can prevent your employees’ overtime costs from adding up by capping the number of hours they can work each week.
Option 2: Increase employee salaries above the salary threshold
The new salary law increases the threshold to $47,476 per year. You can therefore pay more than this threshold for salaries. Employees paid anywhere above the threshold are exempt from overtime.
This option might be ideal for businesses that already pay salaries close to this new minimum salary threshold.
To get the option that will work in your favor, estimate the number of overtime hours your employees work, then calculate this cost against the cost of increased salaries.
Making this comparison can help businesses to determine how best to adjust their employee wages.
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