Do the New Overtime Rules Really Mean Bigger Paychecks?

This week, the U.S. Department of Labor (DOL) passed new rules that require every employer in the country to pay overtime to any employee who earns a salary less than $47,476, regardless of their duties, starting on December 1, 2016. The DOL estimates that the rules will make 4.2 million employees newly eligible for overtime (the previous cutoff was $23,660 per year).

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If you think you may be one of those millions, here’s what you need to know.

Understand Your Classification
Employers classify employees as exempt (not overtime eligible) or nonexempt (overtime eligible). Usually this information is in your offer letter or information packets provided when you start a new job. If you don’t know how you’re classified, you should ask, says James Hammerschmidt, co-managing partner at Paley Rothman, a Bethesda law firm that handles employment law. “Employees should not assume their employer has classified them correctly,” he says. “Armed with this information, employees should then check to make sure if their employer is correct under the new rules.”

Generally, the new rules say an employee who earns a salary under $47,476 cannot be classified as exempt (i.e., they must receive overtime). If your salary is under that cap, determine whether you work overtime (your employer is required to keep track of this). Generally that means working more than 40 hours in a workweek, but some states have lower caps or daily caps. If you do work overtime, you’re entitled to overtime pay. And, even if you earn more than $47,476, you may still be entitled to overtime if you don’t supervise any other employees, run a department or business unit, or have an advanced degree, Hammerschmidt says.

Be Prepared for Changes
Every employer will have to determine how it will comply with the new regulations, and some may make changes to pay structures. “Companies may, for instance, increase a worker's pay to the new salary threshold in order to qualify for an overtime exemption or, assuming the threshold is not reached, simply pay overtime when an employee works more than 40 hours per week,” says David Conforto, a Boston-based employment lawyer who represents workers in matters involving overtime pay.

If you’re an affected employee and you have a choice in the matter, “sit down and do the math,” Hammerschmidt says. For example, if you have a salary below the new threshold and regularly work a lot of overtime, “reclassification to nonexempt status may result in a huge bump in pay, which would be a much better deal than getting a salary increase to stay as an exempt employee,” he explains. On the other hand, an employee who rarely works overtime would likely be better off with a raise above the threshold, he says. And if your employer plans to reduce overtime hours and you were counting on overtime pay, you might be better off with a salary increase to remain exempt.

If your employee status changes, remember to consider whether your benefits package will change. In some workplaces, vacation time, insurance, and retirement benefits are different for exempt and nonexempt employees.

The new rule might also spur changes besides how much cash you take home. For example, some employers may see it as motivation for upping productivity and experimenting with different work styles. “This rule has the potential to change the way we work,” says Jim O’Connell, a compliance analyst at Ceridian, a human capital management technology company. “This is an opportunity for employees and employers to collaborate, for employees to think about ways to remain productive and take initiative by bringing new ideas to the table, on how to modify weekly schedules to schedule smarter and boost productivity.”

If you don’t hear a thing about the new rules at work, don’t brush it off. “Unfortunately, there may be employers who simply choose to ignore the new regulations,” Conforto says. Companies have six months to get into compliance, but if you think your employer is not complying with the regulations you may need to speak to an attorney who specializes in employment law.

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