Before employers implement their proposed workforce changes resulting from the finalization of the new overtime rule, released September 24, 2019, see our article for more information, employers should consider what impact those proposed workforce changes may have on their employee benefit plans.

Employee benefit plans with criteria for eligibility, contribution, etc. based on the classification of salary/hourly or exempt/non-exempt may see participant shifts, e.g., a currently exempt employee, participating in the salary only retirement and welfare plans, makes $475 a week in 2019.  On January 1, 2020, that employee, still making $475 a week, is a non-exempt employee and no longer eligible for the salary only employee benefit plans.

The effects of employees shifting from one plan to another effective January 1, 2020, could create issues with non-discrimination testing, top-heavy results, or a reduction in certain benefits going forward (which may require advance notice to the affected participants).  Less obvious effects could be hiding in the compensation definition.  As employers grapple with how to boost an employee into the exempt compensation tier, employers need to consider whether that classification of compensation is in the definition of compensation in the plan document and if so, is the payroll system considering it for the plan-related calculations based on compensation?

The overtime rule change could affect more than the status of an employee as either exempt or non-exempt, but it may be overwhelming to consider all the ancillary areas the new rule touches.