On September 24, 2019, the Department of Labor (DOL) announced that the final version of the new overtime rule was approved for implementation. This rule becomes a part of the Fair Labor Standards Act (FLSA), which is the federal law that governs who is entitled to overtime pay and when they are entitled to it. While it is important to remember that local and state laws, contracts for employment, and collective bargaining agreements can also affect overtime pay, the FLSA sets the minimum requirements across the country. You may recall that the DOL proposed rule changes in 2016, but ultimately abandoned its efforts after substantial controversy, an adverse court ruling, and the election of a new president. The new changes are similar to, but less drastic than, the 2016 proposals.
What do the current (about to be former) regulations provide?
The default rule is that employers are required to pay an overtime premium of 1.5 times the regular hourly rate to employees for every hour worked over the standard 40-hour work week. However, like any rule, there are exceptions. Certain “white collar” employees may be exempt from the FLSA’s overtime requirements, but only if, in addition to meeting other criteria, they earn a salary of at least $455/week, which is the equivalent of $23,660/year.
Certain “highly compensated” employees may also be exempt, even if they don’t meet all of the criteria applicable to other employees, as long as they earn at least $100,000/year.
What changes is the DOL implementing?
The most notable changes are:
- The new rule increases the salary threshold for “white collar” employees to $684.00/week, or $35,568/year. This replaces the current threshold of $455.00/week, or $23,660/year. The highly compensated employee threshold was also increased from $100,000 to $107,432.
- As an added bonus (pun intended), employers are permitted to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level.
For more information, click here: https://www.dol.gov/general/topic/wages/overtimepay
When does this take effect? The new rules will take effect January 1, 2020.
What does this mean for your business? More likely than not, in 2020, many employees who are currently classified as exempt will no longer meet the salary threshold for that classification. For those employees, you will need to track their hours and, when warranted, pay overtime. More likely than not, you prepared for some version of this back in 2016. It is now time to revisit those plans.
The DOL provides a great FAQ to assist with employee classification.
