Editor's note: This article was published in the fall 2016 issue of EquiManagement magazine.
Just when you think you’ve got your bottom line all sorted out, here comes a new regulation put forth by the federal government: overtime pay. First, before you scramble to check your accounting books, there is a grace period until December 1, 2016, to get things figured out.
The current situation states that, by law, salaried employees who make more than $23,660 a year are not entitled to overtime pay. Overtime pay compensates the worker for hours worked past 40 hours a week—this is paid at a rate of 1.5 times the regular hourly rate.
The new national regulation would stipulate that if a salaried employee makes less than $47,476 annually, then any work past 40 hours a week is considered overtime. The cutoff in salary has roughly doubled, regardless of local economic conditions. This amount will be re-evaluated every three years to accommodate changes in pay and inflation. Accounting for inflation-adjusted dollars, $23,660 in 1975 is comparable to $51,000 in today’s dollars.
What this means for veterinary practitioners is that even salaried employees will have to track their hours to see if they are entitled to overtime compensation. The rule also eradicates the common practice of providing “comp” time, i.e., the employee of a private business could get time off for extra hours worked. Comp time is still an option for workers in the public sector, but no longer will be allowed in private business practices.
One way of minimizing the hourly tracking hassle is to compensate the employee with a salary that exceeds $47, 476 per year. Or the salaried employee who is making less than that could be paid at an hourly rate instead of a salary. And finally, the base salary of an employee who tends to work more than a 40-hour week could be cut in such a way that the overtime pay would compensate for the difference in order to maintain the same yearly earnings.
Employers have concerns that this new regulation could cause employees to pay more attention to their time input rather than to the job at hand. It also could spur business owners to hire independent contractors instead of salaried employees, or to hire more part-time workers to limit each employee’s hours below the 40-hour-per-week-threshold. This potentially impacts income generation for motivated individuals.
An employee might be exempt from overtime pay if working in a decision-making position, such as in an administrative, managerial, executive or professional role, and earning more than $47, 476 annual salary. This includes people such as teachers, doctors or even outside sales representatives.