Saturday, November 5, 2016

How do the new overtime regulations affect your small business?

The rules are changing, soon, and in a big way.  New Department of Labor overtime regulations take effect on December 1, 2016, which will significantly expand the number of employees who must be paid at an overtime rate for hours worked over 40 per week.  Will these changes affect your business?

The answer is almost certainly.  Under current overtime laws (Massachusetts and federal), an employee is exempt from overtime only if two things are true: First, he or she is paid on a salary basis and earns at least $455 per week, and second, his or her actual job duties fall into one of the exempt categories (a bona fide executive, administrative, or professional employee- more on these later).

Who falls within the exempt duties has been fertile ground for litigation for years, and the new regulations don't change that reality.  What is so significant about the regulations is that they raise the threshold earnings from $455 per week to $913 per week, almost doubling it.  In plain language, it means that no matter what an employee's duties are, or whether you currently classify them as exempt from overtime, if they make less than $913 per week (approximately $47,000 per year), they must be paid overtime under the federal laws (1.5 times their hourly rate for all hours worked over 40 in any given week).

To make matters worse, it is your obligation as the employer to keep a record of hours worked, which means if you don't have accurate records you may find yourself on the losing end of a dispute about whether an employee actually worked overtime.

Finally, you should be aware of the consequences if an employee files a successful claim for unpaid overtime.  You could be responsible for two or three times the amount of unpaid overtime, and the employee's legal fees (in addition to what you have to pay your own lawyer).

How can you address this change in your business?  You could, of course, raise the rate of pay for affected employees to preserve their exempt status.  This is, however, a significant increase in expenditures, and depending on the number of employees you have, simply may not be possible.

Other steps you might consider:
  • Make sure you have a policy and controls in place to ensure that any overtime worked is approved in advance by management, so that you are not caught by surprise by overtime expenses, and so that you can make sure that the work being done at the increased rate is necessary and worth the expense.
  • Make sure you have a reliable means of tracking hours- if you do not have good records of time worked, you may have difficulty defending a claim for overtime compensation where is a dispute about the number of hours actually worked.  If your employees work in a fixed location where there are defined business hours, this is not difficult to do.  If you have employees who can and do perform work remotely, you may want to look into available time tracking apps that you can require your employees to use when they start and stop working.
  • You can legally adjust the base compensation going forward to offset increased overtime expenses- so long as the employee is paid the Massachusetts minimum wage, and so long as the change is not retroactive, this is legally allowed, though as a business matter it could have extremely negative effects on morale and retention, and might cause real hardship for your employees.

Some things you should not do:

  • You should not ignore the change in law in reliance on your good relationship with employees, even if they are family.  We have seen more of these relationships sour than you might think, and if they do, you could find yourself with significant liability to an unhappy employee.
  • You should not try to convert any employees to independent contractor status to avoid overtime obligations, at least not without getting legal advice from an employment lawyer.  There are very strict rules in Massachusetts about who may and may not be treated as an independent contractor, and the penalties for getting it wrong can be harsh.

If you are unsure how to address the new law in your  business, or if you are reading this after December 1, 2016 and think you might already have a problem, a consultation with an experienced employment law attorney would be well worth the cost, and could save you both money and headaches in the future.

+slnlaw LLC 

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