Small Business Questions & Answers


Filed under Office & HR

Ask About Overtime Rules

by Muddled Manager | May 28, 2012

Subject :Human Resources

Dear Toolkit,

Do you have any tips for about interpreting the overtime pay rules outlined by the Department of Labor? I'm confused and I'm sure I'm not alone.

Muddled Manager

Dear Muddled,

The current salary floor under which (those euphemistically thought of as) "white collar" employees must be paid time-and-a-half for the hours they work over 40 hours in a given work week. . .(take a deep breath and an aspirin). . .from $8,060 a year to $23,660 a year.

Under pre-2004 rules, only those white collar employees who earned less than $8,060 per year were entitled to overtime pay, a salary that translated to an hourly pay rate lower than the then-extant federal minimum wage. Now, the rules grant overtime pay protection to all white collar workers who earn less than $23,660 per year.

The manual laborers and other blue collar workers will not be affected by the 2004 rule changes. Similarly, police officers, firefighters, paramedics and other emergency service workers are not affected.

Here's a laundry list of the top tips to help you adhere to the rules as compiled by the wage and hour gurus at Wolters Kluwer:

  1. Identify employees who earn less than $23,660. Some employees will be newly nonexempt under the revised salary floor. Then evaluate whether your payroll costs will be best controlled by simply raising their salaries to retain their exempt status (provided they still meet the duties test), or carefully budgeting your overtime needs.
  2. Conduct job analyses. Employers need to conduct comprehensive job analyses to determine which employees perform administrative, professional, and executive duties--as defined by the white-collar rules. Don't forget to carefully identify the on-the-job training or education required to perform the job. The rules promise to expand the definition of "learned professionals," and exempt status might hinge on these criteria.
  3. Revise job descriptions. Following comprehensive job analyses, revise position descriptions accordingly. Make sure the descriptions truly reflect the work performed and skills required. Seek input from employees, and make sure their managers sign off and confirm that the duties and qualifications identified are accurate.
  4. Work closely with payroll. Make sure your system is updated to reflect accurately employees' revised exempt/nonexempt classifications, and that overtime is paid accordingly.
  5. Revise your discipline policy. Employers now have the option of docking exempt workers a full day's pay for certain serious disciplinary infractions without jeopardizing their exempt status. If you choose to implement this option, ensure your disciplinary policies reflect the change.
  6. Develop a communications strategy. You have some fairly sensitive news to convey to your employees. How well you craft the message will be critical in preventing morale problems and other negative fallout.
  7. Honor union contracts. Even though some of your employees will be newly exempt from overtime, your organization still must comply with the terms of any bargaining agreement in place. If your union contract provides for overtime pay for bargaining unit members, failure to compensate for overtime hours would be a breach, regardless of what the rules say about the employees' exempt status. (When the contract comes up for renewal, though, you'll be in a much stronger bargaining position when negotiating this issue.)
  8. Avoid overtime overkill. Your organization may now be able to require additional hours from certain employees without having to compensate the extra time. But there are other strong business reasons not to impose excessive overtime demands upon your workforce. Burnout, poor morale and turnover are potential dangers to avoid. Draft your overtime policy accordingly, and make sure line managers are on board.
  9. Don't forget the status issue. After conducting your job analyses, you may find that you'll need to reclassify employees as "nonexempt" under the new rules. In theory, these employees should be delighted by the prospect of now being eligible to earn overtime pay. But they may instead feel they're being demoted and losing status within the company.

I hope this will get you started down the path of educating yourself on this complex issue. Stay tuned and we'll try to keep you up to date in future columns and additions to our Toolkit website content.