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What small businesses need to know about the new overtime rule

For the first time in 15 years, the American labor force will have updated overtime regulations that may put more pay in their pockets. The Department of Labor (DOL) recently announced a new overtime rule that will take effect on January 1, 2020. The rule is expected to extend overtime pay eligibility for up to 1.3 million workers.

If you are a small business owner with full-time employees, there is a good chance these new rules will apply to you. And if you are an employee, you might see an increase in your earnings.

Current overtime regulations

According to Massachusetts law on overtime pay, most employees must be paid 1.5 times their regular hourly rate for all hours worked beyond 40 in a given workweek. State law does not require overtime after eight hours of work in one day, and some employers and businesses are not required to pay overtime. Currently, employers must pay overtime to salaried employees who make less than $23,660 a year.

Employers need to prepare for the new overtime rules

The new rule will raise the threshold of salaried workers to $35,568 a year. The rule is also:

  • Permitting employers to use annual non-discretionary bonuses and incentive payments (including commissions) to contribute to up to 10% of the standard salary.
  • Raising the total annual compensation required for “highly compensated employees” to $107,432 a year.
  • Revising special salaries for workers in certain U.S. territories and updating base pay for employees in the motion picture industry.

These changes mark the first major overhaul of the federal overtime law since 2004. Exempt employees

Meeting the salary threshold does not automatically make the employee qualified for overtime. Rather, the Fair Labor Standards Act (FLSA) classification of "exempt" and "non-exempt" employees dictates who qualifies for overtime pay. Executive, administrative and professional employees are exempt employees along with outside sales employees and certain skilled computer professionals.

The long-awaited update to the federal overtime rules means change for both employers and employees. As a small business owner, you will need to make informed decisions about how to respond to the new DOL rules, so you can accommodate for the changes and have a smooth transition for your business and employees alike.

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