The final rule updating overtime regulations, which was announced Wednesday (May 18, 2016), will increase the federally required minimum salary level for exempt employees from $455 a week to $913 a week starting on Dec 1, 2016. (Note: some states such as NY have a minimum salary level for overtime that differs from the Federal rate. In those states, the worker must be paid at whichever rate is highest.)
Under the Fair Labor Standard Act (FLSA), exempt employees are generally executive, administrative and professional employees and computer professionals whose salary exceeds the minimum amount set by the government. Thus, someone whose job title is manager, and who is a salaried employer rather than an hourly worker is still entitled to overtime if their salary is below that minimum exempt level.
Under the new rules, a business who, say, has a manager who now works about 45 hours a week and makes $700 a week on a salaried basis, will have to pay that manager $831.25 ($700 + $131.25 in overtime) for working the same 45 hours.
What the law means for employees, is that many more will technically qualify for overtime after Dec. 1. For some businesses – those who already pay their workers higher salaries than the exemption rate, or who pay their employees overtime even if their salary is above the exempt minimum, the rule won’t change anything.
But for many small business owners the increase in the minimum income level for exempt employees may be a significant problem.
At the end of the day, the money to pay the increase has to come from somewhere. Among the choices: increase the price of the products and services; divide full time jobs into part-time jobs (with workers resulting in losing pay individually), reduce profits (which for many small businesses are already too low), eliminate all overtime and slow the production or delivery of goods and services, or cut other expenses such as marketing costs. Each of those options come with their own set of problems.
Related: Is your small business ready for the new overtime rules?
What effect will the new rule have on your business or industry? What changes will you make in your business as a result of the new rule?