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New Federal Overtime Rules Now in Effect

In case it somehow missed your attention, new federal overtime rules went into effect on Jan. 1. 

The rules raised to $684 per week, or $35,568 a year, the threshold at which employees are exempt from being paid overtime. That’s a 50.3% increase from the previous threshold of $455 per week or $23,660 annually – and it means more than 1 million workers are now eligible for overtime anytime they work more than 40 hours a week. 

Lon Matejczyk

Restaurants, retailers and manufacturing companies are all expected to feel the pain, although the greatest impact is expected to be on small companies that don’t have the revenue stream that larger businesses do to use as a cushion against higher labor costs. 

Some companies have taken steps to limit the strain on their staffing budgets. One strategy is to give staffers who are near the threshold a raise that makes them exempt. Other owners are changing work schedules and assignments to make it less likely that employees will have to work more than eight hours in a shift. 

Another approach, of course, would involve beefing up your temporary staffing levels. So long as the temporary workers don’t exceed 40 hours a week and your permanent employees don’t have to work overtime, you’ve eliminated overtime pay. 

As a reminder, an employee is exempt from OT if they meet all of the following: 

  • Are paid on a salary basis; 
  • earn at least the new $35,568 salary threshold; 
  • have executive, administrative, and professional job duties. 

The increase shouldn’t come as a surprise. It’s been known for some time that a change in overtime rules was coming. The Obama administration proposed a much larger increase in the exemption threshold, nearly doubling it to $47,476. Those regulations were set to go into effect in 2016 but were put on hold by a federal lawsuit. 

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