Last May, the Department of Labor unveiled new overtime rules lowering the threshold for white collar employees to be eligible to receive time and a half for working over 40 hours in a week. These changes are set to take effect December 1, which is now only a couple months away.

What are the New Rules?

There are four important components of the new overtime rule changes:

• Annual Salary Exemption Threshold Vastly Increased: Under the new rules, white collar employees must earn at least $913 per week (or $47,476 per year) for employers to be exempt from paying them overtime pay. This is more than double the old threshold of $23,660 annually.
• “High Compensation” Threshold Raised: Some employees can be exempted from overtime pay by being classified as “highly compensated.” In order to meet that definition, an employee must now receive at least $134,004 in salary annually.
• Bonuses Can Comprise a Certain Percentage of Salary Requirements: Up to 10% of the new salary requirement can be satisfied with non-discretionary bonuses and commissions, as long as they are paid to employees quarterly (or more frequently).
• Automatic Adjustments Included: The dollar amounts for these thresholds will be adjusted automatically every three years, beginning in January of 2020.

Keep in mind that these overtime changes are applicable to all organizations, including non-profits, schools, hospitals, government agencies, etc. with annual revenues in excess of $500,000.

How to Adapt to the New Overtime Rules

There are several ways organizations can deal with the new overtime pay requirements. First and foremost, it is a good idea to implement these changes ahead of the December 1 deadline (if possible), so you can find out what kind of effect they will have on your company, and what adjustments need to be made.

Here are some of the ways your organization may choose to adapt to the changes:

• Give raises to employees who are near the $913 per week threshold to put them over the threshold and exempt them from the overtime rules;
• Closely monitor the number of overtime hours you are paying, and reduce them as much as possible;
• Consider hiring additional employees to help reduce or eliminate the amount of overtime paid;
• Make no changes and pay the additional overtime under the new rules.

Are these Rule Changes Etched in Stone?

Many business owners throughout the country have complained about the new overtime rules, and in late September, Arizona and 18 other states joined Texas and Nevada’s lawsuit against the federal government in an effort to try and block their implementation. It is uncertain, however, whether or not the case will be heard and/or the plaintiffs will be granted an injunction before the December 1 deadline.

For affected organizations, it is best to assume that the new overtime rules will be implemented and adjust accordingly. The first step is to speak with your CPA about what steps you need to take to prepare, and what strategies are most effective in helping your company adapt to these changes.