What New Overtime Pay Laws Mean for You

Starting December 1, 2016, some new laws will be going into effect that will have an impact on millions of salaried workers who earn less than $47,476 annually.

In May, the Obama administration announced new rules that would amend the Fair Labor Standards Act (FLSA) to expand mandatory overtime pay to all salaried employees earning less than $47,476 annually regardless of job title. Prior to this change, only workers earning less than $23,660 were eligible for mandatory time-and-a-half overtime pay. Certain higher-level positions were also considered exempt from mandatory overtime pay and as a result, many employers tried to have lower-level workers as classified as managerial or administrative workers, even if they had no duties in that regard, to avoid paying overtime.

The $23,660 threshold was set in 1975 and hadn’t been adjusted to keep up with the rate of inflation. Over 40 years later, the old threshold had fallen below the poverty level for a family of four. Under the new rule, approximately 35% of full-time salaried employees in the United States will be eligible for overtime pay, which is significantly higher than the 7% that were covered under the old threshold. However, this percentage is still much lower than the 62% of salaried workers who were covered by the rules in 1975.

If you are part of the group of people who are now entitled to overtime pay under the new rule, be aware that there’s a chance you might not actually see a big change in your paychecks. Many business owners are still in the process of trying to figure out how they will handle the changes and, according to an interview on WDET with employment law specialist Brian Kreucher of Howard & Howard, there are several different ways employers might decide to handle the change and remain in compliance with the law.

Some workers may indeed see bigger paychecks because of the rule. An employer might certainly decide to keep worker salaries the same and simply pay overtime when required. In some cases, an employer might decide it would be more cost-effective to raise salaries above the $47,476 threshold to avoid having to pay overtime.

If you routinely work over 40 hours per week, you might not get a bigger paycheck, but you may at least work fewer hours. If the company’s workload allows for it, employers might simply decide to not allow people to put in more than 40 hours per week. If it’s not possible to do that and still manage the workload, employers might decide to hire more part-time employees to handle the work the full-time employees can’t.

Some other potential outcomes would be a lot less fair to workers, but would still be considered legal. Since the new rules only apply to salaried workers, an employer might choose to switch some workers from being salaried to being hourly workers. Or it’s possible that an employer could decide to lower a worker’s base wage and let the overtime pay make up the difference so that the worker doesn’t see any real difference in their paychecks. Or, in the worst case scenario, an employer could potentially decide to eliminate some lower-paid positions and divide up the work among higher-paid people at the company who are exempt from the new overtime pay rules.

Although it’s still too early to tell how many business owners will handle the new overtime laws, two main industries are expected to be the most affected by the changes: retail and food service. In these industries, managers frequently end up putting in overtime, but had been considered exempt from mandatory overtime pay under the old rules. Under the new rules, managers in these industries will either start receiving overtime pay or will spend less time at work.