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Proposed U.S. Overtime Rules Bad for Small Firms?

There’s been much talk lately about the proposed national rules from the U.S. regarding overtime pay. Many observers are confused about just who would qualify for overtime and under what circumstances. Furthermore, many small business owners are concerned about these proposed rules will impact their organization.

Even if you don’t have exempt employees, it pays to understand the proposed rules since they will probably affect your company.

The Way It’s Now

Presently, whether an employee receives overtime pay (cover that’s 1.5 times the normal rate of pay for the worker ) is dependent on multiple laws. On the national level, the most important law is the Fair Labor Standards Act. In addition to the FLSA, there are state laws which are applicable for employees working in that state (typically these rules apply irrespective of where the employer is located but are solely based on where the employee performs the work).

Besides the FSLA and state legislation, there are additional state and federal laws that apply to certain industries. By way of instance, truck drivers and railroad employees have different national laws that govern their cover.

Under the FLSA and many state laws, workers are classified as either non-exempt or exempt. Non-exempt employees are entitled for overtime pay. Exempt employees aren’t paid overtime in many circumstances.

Non-exempt employees are entitled for overtime pay. Exempt employees aren’t paid overtime in many circumstances.

Three classifications of employees might be considered exempt: (a) administrative, (b) executive, and (c) professional. Anyone that doesn’t fall into one of these three classes is deemed non-exempt — assuming there is not another federal or state law which would apply to this job class — and must be paid overtime for hours worked over 40 hours in a 7-day period.

State legislation will also come into effect. By way of instance, some states legislate that overtime applies not just to anything worked over 40 hours at a 7-day period, but may also apply to any hours worked over 12 in a 24-hour interval, even if there are less than 40 hours at a 7-day period.

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Oftentimes, employers attempt to categorize workers as exempt as it is to the company’s advantage to do so. If any employee is exempt, an employer doesn’t need to be worried about ensuring a worker only works 40 hours in 1 week or determining just what the worker’s pay would be to compute overtime.

Sometimes, in addition, it benefits an employee. Many employers offer certain advantages to only exempt workers. These benefits may include holiday pay, sick time, or other medical, dental, and insurance benefits that aren’t required by law. But some view the exemption classes as a means for employers to make the most of employees that are wrongly classified or reduced wage exempt classes.

Exempt vs. Non-exempt

To determine if an employee falls into one of those non-exempt classes, an employer have to look at (a) the amount of pay the employee receives, (b) how the employee is paid, and (c) the sort of work the worker does. To be categorized as exempt, now an employee must be paid at least $23,600 annually whatever the exemption category and be paid the same rate each pay period regardless of hours worked (with a few stated exemptions).

To determine if an employee falls into one of the non-exempt classes, an employer have to look at (a) the amount of pay the employee receives, (b) how the employee is paid, and (c) the sort of work the employee does.

To fall under the executive exemption, an employee’s primary duty must be managing different individuals. This includes substantial input on staffing, such as whom to fire, hire, and what to cover the employees that the handling employee oversees.

To fall beneath a professional exemption, the employee must have to have a substantial quantity of instruction or the equivalent work experience or certification to complete the necessary assigned jobs. Normally, professionally-exempt employees are attorneys, doctors, engineers, computer scientists, and other highly compensated, highly-educated professions.

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The administrative group typically has the most grey area. To fall under the statute, an individual must primarily perform office work and have lots of discretion in how to carry out the job. Moreover, the position has to have a substantial confidential and optional aspect.

By way of instance, an executive assistant to a lawyer who has to keep information confidential and must ascertain his work schedule based on the priority of job might be considered an administrative exemption whereas somebody that primarily staffs a secretary desk just answering phones and greeting guests might not be regarded as exempt even if the titles are the same.

The Federal Proposal

When an employee falls under the administrative, executive, or professional group, that worker currently only needs to generate a salary of $23,600 annually to qualify as exempt. Under the new federal rules — here is a PDF of this proposal and ask for comments — an exempt employee will have to satisfy the exact same classification requirements but also earn $50,440 each year.

At present, a worker working fulltime (2,080 hours per year) could be compensated $11.35 an hour to be considered exempt if the employee only works 40 hours per week. Under the proposed rules, a worker must earn $24.25 an hour when she works just 40 hours per week.

The federal minimum wage is now $7.25 per hour. A worker earning the minimum wage would need to operate 2,863 hours in 1 year to create the lowest amount required under the present rules (approximately 55 hours per week) once overtime is calculated. Under the new rules, someone working minimum wage would need to work 102 hours per week after overtime is calculated.

The new rules are seen by some as a benefit to employees. Others think about the rules as a burden to both the worker and the employer. Some say the proposal prevents employers from taking advantage of low paid employees and forces employers to pay overtime.

The new rules are seen by some as a benefit to employees. Others think about the rules as a burden to both the worker and the employer.

Some observers assert that the proposal prevents employers from moving individuals into management positions, limits employer benefits (as companies will classify less individuals as exempt), and will make companies require more work from workers in less hours.

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For small business owners that have classified employees that earn less than $50,440 annually, it will surely increase administrative and compliance costs, as all workers making less than that will have to be reclassified and a rigorous accounting of hours worked each week will have to be set up.

In a sense, the rule affects all business owners, whether they have employees or not or if their workers will be impacted by this rule. As an example, even if you don’t have workers, if you buy business cards or other services from a company that’s affected, your costs could go up.


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