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Hold the Overtime!

Many of my clients struggle in classifying workers. First, we have to determine whether the worker is an employee or contractor. If they are an employee, then we have to determine if they are hourly or salaried (exempt). Most employees are paid hourly and entitled to time and a half for time worked after 40 hours a week. Exempt employees are paid a salary for unlimited work and exempt from overtime regulations. Most exempt employees are professionals, executives or administrators. These regulations were written in the 1940s and were intended to pay a set salary for these white-collar professionals, no matter if they worked less than or more than 40 hours a week. To be exempt from overtime requirements: (1) the employee must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (“salary basis test”); (2) the amount of salary paid must meet a minimum specified amount (“salary level test”); and (3) the employee’s job duties must primarily involve executive, administrative, or professional duties as defined by the regulations (“duties test”). The current salary test is $455/week or $23,660 per year. This amount has not been increased since 2004. President Obama issued an executive order that was supposed to become effective on Thursday (December 1, 2016) that raised the salary level to $913/week or $47,476 per year. Many small businesses have been planning for the last six months to implement and afford the change. Salaried employees making less than $455/week would have had to be paid overtime or given a raise to $913/week to continue to be exempt from overtime.

Last week, a federal court in Texas temporarily prohibited the new rule from taking effect. It would have affected 4.2 million workers. The judge said that President Obama exceeded his authority by raising the salary test so dramatically. The US Labor Department “strongly disagreed” with the decision and may appeal the ruling. For now, the existing overtime rules still apply. Stay tuned!

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