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How the New Overtime Rules May Affect Your Small Business

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On March 7, 2019, the Department of Labor (DOL) proposed a new overtime rule for exempt employees. Currently, employees paid below $455 per week must receive overtime. This is $23,660 annually. Job titles do not determine exempt status. Job duties and salary determine exempt status.  

Are you currently paying and classifying your team correctly? 

It was announced in September 2019, the final rule will go into effect on January 1, 2020. These rules are:

  • Pay overtime to anyone who makes under $684 a week regardless of job title. This is $35,568 a year. 
  • Nondiscretionary bonuses and incentive payments (including commissions) paid on an annual or more frequent basis may be used to meet up to 10% of the standard salary level.
  • Highly compensated employees (HCE) would require workers to earn at least $107,432 annually. To be exempt as an HCE, an employee must also receive $684 per week on a salary or fee basis. This is without the payment of nondiscretionary bonuses and incentive payments.
  • Special salary levels would apply to certain U.S. territories. Also, an updated base rate would apply to employees in the motion-picture industry.
  • There are no changes to the duties test to determine exempt or non-exempt status.

Under the FLSA, you must determine an employer’s rate of pay before calculating overtime. Please read here about what wages are to be included in the employee’s rate of pay. This includes what is discretionary and nondiscretionary bonuses.

 

What Makes an Employee Exempt?

If you make your employee a salaried employee, it does not mean they are exempt from overtime. 

There are five categories in which an employee could be exempt from overtime. The most common are executive, administrative, and professional. Below we will discuss the pay and duties needed for each of these.  

 

Executive Exemption

To qualify for the executive exemption,

  • Pay the employee on a salary basis more than $684 per week. 
  • The employee’s primary duty must be managing the business or a department. 
  • The employee must direct the work of at least two or more full-time employees or their equivalent.
  • The employee must have input or be able to hire, fire, or promote other employees. 

It is important to note that it is not only about managing employees. It is also about having the ability or input to hire, fire, promote, etc. 


Administrative Exemption

This can be the most unclear exemption. You may think administrative people are clerical workers. That isn’t always the case. Make sure you classify these employees correctly. 

To qualify for the administrative exemption:

  • Pay the employee on a salary basis more than $684 per week. 
  • The employee’s primary duty must be office or non-manual work. It should be related to the management or general business operations of the employer or the employer’s customers. 
  • The employee’s main duty includes being discreet and having the ability to make independent judgment on matters of significance.

It can be tough to determine who is exempt or non-exempt for administrative staff. Also, look at each job function. You should ask yourself – can this job make independent decisions for matters of significance? What kinds of job titles have this authority? Normally it includes jobs such as a human resource (HR) specialist or accountant.  For example, an HR person can make changes to policy. An accountant can file business taxes. These are high-level administrative jobs. 


Professional Exemption

To qualify for the professional employee exemption

  • Pay the employee on a salary basis more than $684 per week. 
  • The employee’s primary duty must require advanced knowledge. It is work that is intellectual and requires consistent exercise of discretion and judgment.  
  • The advanced knowledge must be in a field of science or learning. It is customarily acquired by an advanced education.

According to the DOL, it is not work involving routine mental, manual, mechanical, or physical work. It is someone who has to analyze, interpret, and make deductions. 

For example, these are people such as doctors or lawyers. It can also include creative workers such as writers or musicians. 


Job Descriptions

Ensure you have job descriptions that clearly define what your employees do. Also, use action verbs to describe what your employees are doing. Furthermore, you should list the key duties first. 

For example, do they manage or supervise others? If so, state that on the job description first. 

Furthermore, you should review job descriptions annually. Also, change them anytime the functions of the job changes. If the job requires the employee to exercise discretion and independent judgment, you should state that. This can be placed in the competencies section. 

Write your job descriptions correctly. This can help you make decisions on how to pay your employees. 

 

Track Your Employees Time

It is important to have accurate timekeeping records. There are several court cases where the employer did not have good records.  As a result, the employer lost the case and had to offer backpay. If an employee has proof that they worked more hours than their employer states, they may have a case.  

Ensure you track your employees’ times accurately. If you don’t, your employees may show records where they have worked more hours. 

Consider investing in a time tracking app for your small business like ezClocker. It keeps customer information and schedules appointments and tasks for your employees. Also, it will help manage your employee’s timesheets. They can clock in and out from their phones anywhere. There is also a GPS to verify their location.  

Your team is also able to see the same schedule and time clock information as you do. 

You should keep a log of all employee time punches. Regardless of what system you use, ensure you keep accurate records. 

 


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Review All Jobs Before the End of the Year

If you need more information, consider reading the DOL’s Small Entity Compliance Guide

Review each job before the end of the year. Write thorough job descriptions for every job duty. Also, alter your job descriptions if they are not matching the duties. Ensure they are clear and concise. 

Prepare to answer questions and show your team how they may or may not qualify for overtime pay. Also, be open with them and listen to them. They may have other job duties they are doing of which you are not aware. This could matter even more to them if you are changing their status. 

Consider investing in a system that can track your employee’s time. A good time-tracking system keeps you and your employees on the same page. Also, address any employee time issues immediately. You do not want to try to determine what happened two years ago. 

If you find you have classified an employee incorrectly, you should fix it quickly. Also, talk to your employee and issue backpay. Ensure you and your employee sign off on the new pay change of status. 

Some states have their own duties tests or salary thresholds. You must satisfy whichever salary threshold is greater. Above all, make sure you know your state laws. 

For those jobs where you are unsure, consider consulting an employment law attorney. 

 

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Author: Kimberley Kay Travis

Kim Travis, co-owner of Travis and Adams Consulting Group, has over 20 years’ experience in human resources and leadership roles. She has specialized knowledge in employment law, employee relations, recruiting, management consulting, leadership development, manufacturing safety programs, and writing business articles and blogs.

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