The Fair Labor Standards Act (FLSA) is a federal statute that defines, among other things, the difference between an exempt employee (one who is paid a salary and is therefore exempt from overtime pay) and an hourly employee (someone who may be paid on an hourly, weekly, or even yearly basis, but is not exempt and is therefore subject to overtime pay).
The current threshold is $455 per week, meaning that if you’re paid that amount or less you’re automatically assumed to be hourly. If you’re paid more than $100,000 per year, you’re automatically assumed to be exempt. In between, there are duties (referred to as professional standards) that will define an employee as exempt.
So that’s the current law. Under the new law, they’re going to raise that salary to $913 per week, and the automatic compensation level to $134,000 per year. What this means is that a lot more people are going to become subject to hourly rules, no longer exempt. When that happens, as a small business owner you will have to convert those people from exempt status to hourly status, from being paid a salary and not being eligible for overtime pay, to being eligible for overtime pay and being paid hourly.
In government contracting, it’s common practice for people to put in a lot of extra hours, many of them spent on non-billable work (sometimes called “company time”) rather than directly serving customers, after the 40-hour week is “done.” This might be time spent doing things like interviewing candidates for other jobs in the project or elsewhere in the company, preparing status reports, or attending company meetings. A major example of this is doing proposal work.
Let’s say you have an employee who works 40 hours a week of billable time and 10 hours a week of “company time.” Under these new rules that employee will now have to be paid for all of those 50 hours (and 10 of them at overtime rates).
Of course you’d be smart to consult with the compensation experts and lawyers whose job it is to work on this stuff. I will only say that it’s important for you to understand these issues because these changes are definitely going to be a challenge.