Employers Beware: Overtime Pay is About to Become Costlier

July 29, 2015

We have been counseling our business clients for many years to be mindful of how they classify their employees as either exempt or non-exempt under the Fair Labor Standards Act (FLSA). That guidance is about to become even more important following President Obama’s proposed changes to the regulations that dictate which employees are entitled to overtime pay.

Under the current state of the FLSA, certain “white-collar” employees are exempt from the general rule that employees must be paid overtime pay in the amount of one and one-half times their regular rate of pay for all hours worked over 40 in a given week. In order to be considered exempt from the overtime pay requirements, the employee must be paid on a salary basis not less than $455.00 per week ($23,360.00 per year) and fall into one of the enumerated exemptions, the most common of which are the executive exemption, administrative exemption, professional exemption, computer employee exemption and outside sales exemption. Workers who fall under such exemptions and who meet the minimum salary threshold are not entitled to the overtime pay premium no matter how many hours they work in a given week. The minimum salary threshold has not been updated in more than 10 years until President Obama announced his proposed changes. Under the proposed changes the minimum salary threshold would be raised to $970.00 per week in 2016, meaning that in order for an employee to be exempt from the overtime laws the employee would have to be paid an annual salary of at least $50,440.00. The change is expected to affect approximately 5 million workers nationwide. In addition to raising the minimum salary threshold, the new regulations are expected to simplify the identification of non-exempt employees under the various exemptions enumerated above.

Job misclassification is one of the more costly mistakes an employer can make. Under the FLSA, an employer who has failed to pay required overtime payments will be liable not only for the unpaid overtime payments dating back three years, but also for liquidated damages in an amount equal to the unpaid overtime wages and for the attorney’s fees incurred by a successful plaintiff. When the new regulations take effect, presumably in 2016, there will be increased risk to employers given that workers who were previously considered exempt will no longer be exempt. If you have any questions regarding the classification of your employees or would like clarification on the current laws and/or proposed changes, please contact Ethan O’Shea, Esquire in HRMM&L’s Business Advisory Group.

Questions Every Business Must Ask

Q. Has your business recently reviewed its legal structure to determine whether it is set up in the most advantageous manner for legal and tax purposes, considering recent developments and changes in the law?

Q. Do the owners of your business have a current, updated buy-sell agreement which controls how ownership interests in the business are to be transferred in the event of an owner’s death, disability or termination of employment?

Q. Have the owners of your business developed a succession plan to define how ownership and authority will transition upon the death or retirement of the present owners?

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