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The Overtime Time-Bomb

Before December 1, 2016, employers need to ask themselves a critical question: Does my business employ anyone who works more than 40 hours per week who (a) receives an annual salary of less than the new federal standard rate of $47,476.00 ($913/wk.) and (b) does not receive overtime pay? If the answer is “yes” the employer should immediately reconsider whether there is any basis for such employee(s) being exempt from overtime pay. This is due to changes in federal law which essentially will deprive most employers of the ability to avoid overtime rules for salaried employees who are paid at a rate below the new federal standard rate. These changes take effect on December 1st of this year.

The consequence of failing to pay attention to the new overtime standard is that an employee may insist on overtime pay for any time worked above 40 hours in any week. This calculation is not made on the basis of average hours worked per week in a pay period. It is a weekly calculation. Worse, an employer who fails to make the required overtime pay is subject to liability for twice the amount owed to the employee and is responsible for paying any attorney fees the employee reasonably incurs in forcing payment of overtime pay. And, the owners and principal officers of the employer can be held personally liable for these amounts even if the employer is corporation or other limited liability entity.

In the past, employers have been able to avoid overtime pay requirements for professional employees (e.g. nurses, doctors, engineers, lawyers, computer programmers, research scientists etc.), executives (e.g. store managers, department heads, sales directors, principal officers) and administrators (e.g. chief financial officers, certain H.R. personnel) by paying an annual salary above $23,660. After December 1st such employees will no longer be exempt under these categories unless they are paid at or above the new federal standard rate. While some alternative forms of exemption may be available, such as for outside salesmen, for employees of exceedingly small employers or for companies with no connection with interstate commerce (a truly rare situation), most employers will be faced with the requirement of complying with these rules.

It is important to realize that an employer cannot assure itself of compliance by simply instructing its employees not to work more than 40 hours per week. If employees actually do work over 40 hours per week the overtime rules kick in if the employer is aware of that extra work. It does not matter what the employee reports or turns in on a time card if the employer has knowledge of actual overtime. Nor can an employee’s entitlement to overtime pay be waived in advance. Any such prospective waiver is invalid as a matter of law.

The result of these changes is an expectation that nationwide, over 4 million people will suddenly become eligible for overtime pay. Any employer who fails to identify employees in its workforce who benefit by these changes and adjust its arrangements with such employees to comply with federal law is sitting on a financial time-bomb. The scope of overtime exemptions is already too complicated for guesswork by employers. The new rules up the ante considerably and may justify a legal review of employer pay practices.