Steps companies can take now to prepare for the new overtime rule

Chances are many if not most businesses will be affected by the U.S. Department of Labor's overtime final rule. The government estimates that 19% of white-collar, salaried employees who are currently exempt from overtime will either gain overtime protections or get a raise to the new threshold of $913 per week.

Companies shouldn't wait until the last minute to determine if they are in compliance with the new rule. Here are some choices for simple steps employers can take to make the transition easier when the rule takes effect December 1, depending on how the business decides to comply with the new rule.


Depending on the industry, it is estimated that fewer than one out of five employees will be affected. The first obvious step is to review the payroll to determine which currently exempt employees are being paid below the new threshold. As my colleague Matt Fitzsimmons suggests in his article on the new rule in this issue of Legal Insights, it would be wise to review all job classifications to ensure the correct exemption status

Remember that in determining exemption, pay is not the only measure. The new rule does not change the so-called duties test, which in part determines the exemption. Presumably then, the company's roster of exempt employees has already met the test—although it wouldn't hurt to double-check.


Exempt employees whose salaries will be below the new pay threshold, and who will be working more than 40 hours in any week, will have to be paid time-and-a-half by the hour for that extra time. That means employers need to have two payroll procedures in place.

First, salaried employees' time must be recorded. The method is up to the employer, as long as complete and accurate records are kept. Second, the overtime must be calculated, based on the salary being the equivalent of 40 hours' pay.


The work week must be seven consecutive 24-hour days. In other words, if the week normally begins on Monday, pay for work on the following Sunday cannot be flipped over to the next week. If it is over 40 hours, then it must be paid as overtime.


Employers can take a number of paths to comply with the rule. The simplest way to comply with the new rule is to increase the salaries of those employees who will no longer qualify as exempt if their pay is under the new threshold, as long as they meet the duties test.

After a review of their duties, currently exempt employees who are below the salary threshold can be classified as non-exempt and be paid overtime.


A business can also either hire more employees to avoid overtime, or otherwise reduce or eliminate overtime.

Possible tactics include adjusting schedules, distributing workloads and spreading work hours. In addition, the final rule allows employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level.


Any change in current practices can be disruptive for employees, whether or not they are directly affected. It would be a good idea to conduct internal conversations among management to determine what actions are going to be taken and how to handle HR communications, especially to exempt employees who will become non-exempt.

Newly non-exempt employees may have to begin tracking time, including breaks, and their duties may have to be changed. Employers also might consider prohibiting newly non-exempt employees from taking laptops or company cell phones home to prevent after-hours work.

In any case, employees should be informed about changes that will affect them, and especially the company policies that will dictate the hours they work. Employers should also review their employee manuals to make sure they are consistent with any changes they implement.

—Jim Juliano