A little over 2 years ago, President Obama sought to restructure America’s labor system, and overtime laws. But a lot can happen in two years. That being said, we have compiled this guide so you know what’s going on, the impact these changes will (or already) have on your business, and how you can keep yourself walking in the legal line. Especially because these changes are expected to take effect in the summer of 2016.

Lay it on me – what’s changing?

First things first: under our current structure, overtime pay must be given to salaried employees that make less than $23,360 a year. That’s also equivalent to $455 a week.

So now you know what’s currently going on, but what might happen? The new threshold may be raised, meaning salaried employees that make under $50,440 a year (or $970 a week) must be paid for overtime work.

To break it down a little more, overtime essentially means time and a half for every hour an employee works after the typical 40 hours in their workweek. So if this reform happens, expect the current 8% of the workforce that is affected to jump to 40%. That’s an estimated 5 million Americans. For small business owners, the additional wages (on average) are estimated to be $2,400 a year per each qualifying employee.

Okay, so what’s the good? The bad? The ugly?

The upside here is that we all know change can be a good thing. It’s no secret that many employees are overworked, and the threshold for overtime pay has not been updated in over a decade. Not to mention adjustments to match inflation. Essentially, the proposed changes seek to give people a better quality of life.

On the other hand, these changes do mean increased costs to you as an employer. You may have to analyze which employees to keep as non-exempt or if you need to hire additional part-time workers. So yes, there is some red tape here, but additional pay for your employees can also yield increased productivity and job satisfaction.

What can I do to prepare?

The first thing is to simply remain updated. Whether that’s monitoring your news sources or working with your broker, be sure you are getting the information you need. Like Confucius said, “success depends upon previous preparation.” And who are we to argue with 2,000-year-old advice?

You’ll also need to think about a labor strategy. Some elements include:

1. Estimate the number of total overtime hours that your employees work throughout the year so you can estimate your costs. Because let’s face it, money doesn’t grow on trees. As much as we wish it did. 😉
2. Compare that cost with your current labor budget and determine if you will need to increase that budget.
3. Ensure your employees know about any changes you are going to make in regards to their work schedules and responsibilities.

If you are a little confused about how to classify your employees – exempt or non-exempt, that’s more than okay. Just perform an FLSA analysis. Say what?

The FLSA, aka the Fair Labor Standards Act, analysis will show you the exceptions to the rules of the new overtime reform. Meaning some employees, if they pass this “duties test,” are not eligible to receive overtime pay. Here’s how you know if an employee is exempt from overtime pay:

Executive Exemptions

1. The employee has to be salaried and make at least $455 a week.
2. Their main job responsibility has to be managing the company or a department or division of your business.
3. They must regularly oversee the work of at least 2 or more other full-time employees.
4. This employee must also have the right to hire or fire employees; or have a substantial amount of weight placed on their recommendations of the hiring or firing or promoting of employees.

Administrative Exemptions

1. The employee has to be salaried and make at least $455 a week.
2. Their main job responsibility must be administrative/office or non-manual work related to managing business operations.

Professional Exemptions

1. The employee has to be salaried and make at least $455 a week.
2. Their main job responsibility must be related to performing work based on advanced knowledge (typically science fields) that was gained under specialized instruction or other courses (in layman’s terms, school).

Computer Employee Exemptions

1. The employee has to be salaried and make at least $455 a week or if hourly, must be paid at least $27.63 an hour.
2. The employee must work as a computer systems analyst, programmer, software engineer, or the following must be their main job responsibilities: managing and implementing hardware and software systems, designing/developing/creating/testing computer programs, modifying operating systems, or a combination of the three.

We know, this is probably a lot. But the hope is that you can stay as prepared as possible so that you not only know what’s coming, but you can handle it like a pro, too.