New Rule on Overtime Pay

As more employees qualify as nonexempt, will your budget suffer?

Jonathan T. Howe 2016

 On Dec. 1, a new rule will increase the salary threshold for workers to be considered nonexempt and thus eligible for overtime pay.

 All employers should review their policies on overtime activity and devise work schedules that avoid increased costs, as more employees are likely to qualify for mandatory overtime pay.

 For additional information, consult the U.S. Department of Labor's website at

In 2014, the U.S. Department of Labor was asked by President Obama to review overtime rules for nonexempt employees - those entitled to overtime pay under the federal Fair Labor Standards Act. Traditionally, nonexempt referred to employees who earned less than $23,666 a year and whose duties did not involve executive, administrative or professional responsibilities.

Well, that is changing very soon. A new rule going into effect on Dec. 1 defines exempt employees - who are not entitled to overtime pay - as those paid a fixed and predetermined salary of at least $47,476 annually or $913 per week, and responsible primarily for executive, administrative or professional duties. This greatly expands the pool of nonexempt workers.

For our industry, this could wreak some havoc. Generally, with a convention or meeting, it is expected that staff might need to perform duties in an overtime situation, such as working more than 40 hours per week. The new, more inclusive salary threshold means more people serving meetings will qualify for mandatory overtime pay. That's certainly good news for them, but what will it do to your budget?

If a person is defined as an independent contractor, the rules do not apply. Independent contractor status generally has two definitions - one used by states and the other by the Internal Revenue Service for tax requirements. In all cases, to be an independent contractor you may simultaneously have other job opportunities, be able to determine how the job is to be carried out and not be subject to control by the hiring party. "Control" also has varying definitions. Regardless of these variables, there must be a written agreement clarifying the independent contractor's status.

What happens if you do not follow the new overtime parameters? Violators could be sued by the Department of Labor and/or the employee, who could seek back pay, liquidated damages, interest, attorney's fees and court costs. Civil fines also could be assessed, including up to $1,100 per violation for willful and repeated occurrences.

It's clear that for all concerned, smart policies should be put into place regarding the approval process for overtime activity and how it is to be calculated, along with proper classification of exempt vs. nonexempt employees. Where possible, work schedules should be crafted to avoid the potential need for overtime.

As of Dec. 1, many businesses could face a dramatic increase in costs, as employees previously deemed exempt no longer will be under the higher salary threshold. To be sure you understand how to comply, consult with your human resources department and legal counsel.

Jonathan T. Howe, Esq., is a senior partner of the Chicago and Washington, D.C., law firm of Howe & Hutton Ltd., specializing in meetings and hospitality law. Email questions to him at [email protected]