Employers Will Be Required to Pay Overtime to Managers and Executives Making Less Than $50,440 Annually
Michael G. Trachtman
Powell Trachtman Logan Carrle & Lombardo, P.C.
MEA General Counsel
On June 29, 2015, President Obama announced that the federal government will soon implement a foundational change in the overtime rules that affect management and executive-level employees. The literal bottom line: employers will be required to pay overtime to millions of managers and executives who are now exempt from overtime requirements.
Under the current law, employees whose primary duties involve the exercise of independent judgment and supervisory responsibility, and employees who perform high-level administrative work involving independent decision-making related to important business issues, are exempt from overtime requirements — if they earn at least $23,660 a year.
Under the new rule, that threshold is going to jump to $50,440 per year. In other words, salaried employees who earn less than this threshold – without regard for the nature of their job duties and responsibilities — must be paid on an hourly basis, and must be paid overtime for all hours worked in excess of 40 hours per week.
The monetary and practical effect of this change will be stark – in particular, many smaller companies delegate a great deal of responsibility to exempt, management-level personnel in the $40,000 to $50,000 salary range. Those employees will be converted to hourly employees who must be paid overtime.
A litany of questions will have to be dealt with. Employers depend on managers and administrators to do what it takes to achieve their goals. How will that change if those managers and administrators now have to be paid overtime if they work more than 40 hours per week? Will it make sense to lower base pay to account for potential overtime payments? What happens to the medical benefits, vacation entitlements and bonus packages of employees who are now salaried, but will become hourly employees? Will it make sense to increase the salaries of currently exempt employees who earn less than this threshold in order to avoid the overtime requirement? How will salaried employees, who now have the freedom to take time off for doctors’ appointments and other personal matters, deal with the realities of the no work/no pay world?
These changes will not be enacted until sometime in 2016, and over the coming days and weeks it is expected that the government will be releasing more details of how the changes will be implemented.
Stay tuned – MEA will be providing seminars and other guidance to help employers in Pennsylvania, Delaware, and New Jersey plan for this new and different future.
*This MEA Member Alert is provided for general informational purposes only and does not constitute legal advice.
Michael G. Trachtman is MEA’s general counsel and the President of Powell Trachtman Logan Carrle & Lombardo P.C., a 30+ attorney King of Prussia-based law firm that has represented businesses and business people for over twenty-five years. He can be contacted at firstname.lastname@example.org. See www.powelltrachtman.com for more information.