United States: Department Of Labor Updated Overtime Rule

Last Updated: October 2 2019
Article by Kathleen Lucchesi

A Happy New Year Courtesy of the U.S. Department of Labor

It looks like it could be a very Happy New Year for nearly 1.5 million workers come January 1, 2020. On September 25, 2019, the U.S. Department of Labor ("DOL") released its final overtime rule which calls for a significant – though not as significant as originally proposed under the Obama administration – increase to the minimum salary threshold for overtime eligibility.

The Background

Unless specifically exempted, employees covered by the Fair Labor Standards Act ("FLSA") must be paid for all hours worked in excess of 40 in a single workweek at a rate not less than one and one-half times their regular rate of pay. This rate is referred to as "overtime" pay. Generally, employees paid by the hour are non-exempt or entitled to overtime pay. Under the FLSA, certain employees are exempted, or excluded, from this overtime pay requirement if they are paid a minimum salary on a salary basis (not hourly) and they perform executive, administrative, or professional duties as the primary duty of their job, or are salespeople or STEM (Science, Technology, Engineering, or Math) employees. Temporary employees, independent contractors, volunteers, and interns also fall under the FLSA with regard to overtime classifications.

Currently, employees paid at least $455 per week, or $23,660 per year, on a salary basis who also meet one of the DOL's eight job duties tests are exempt from both minimum wage and overtime pay requirements. Beginning January 1, 2020, that standard salary level will go to $684 per week (or $35,568 per year for a full-year worker). For now, the DOL is not making any changes to the job duties tests. So, employees will still need to meet both the new minimum salary threshold and one of the job duties tests in order to be exempt from the FLSA's overtime pay requirement.

The Updated Final Rule

Under the updated final rule, employers may credit non-discretionary bonuses, incentives, and commissions toward an employee's salary level, as long as those bonuses are paid at least annually. However, that credit has a cap – those bonuses may only account for up to 10% of the employee's salary. The DOL is also raising the standard salary level for "highly compensated employees" from $100,000 per year to $107,432 per year. The DOL anticipates approximately 1.3 million employees will become eligible for overtime pay under the final overtime rule.

What does this mean for employers?

Exempt employees making less than $684 per week will no longer be exempt from overtime come January 1. That means employers will need to raise employee pay to meet the new minimum threshold, convert those employees to hourly workers and get ready to pay additional overtime, or keep those employees at their current pay, but limit their overtime work so as to avoid additional overtime expenditures.

It's important to also remember that not all states have the same guidelines for worker classifications – many have their own wage requirements and laws. Employers must comply with both state and federal laws in order to avoid the scrutiny of the DOL.

What should employers do?

Start your New Year's preparations now because if you've got even one employee, this final overtime rule will apply to you. Take the next 3 months to review employee pay and classifications and plan for necessary changes rather than waiting till midnight on December 31st. Lincoln Derr can help you get ready to ring in the New Year and the new overtime rule.

While we're on the subject, January 1st is also a great time to make sure your policies and procedures are up-to-date and, more importantly, the policies that you actually follow. Consider it a New Year's check-up for your HR department or HR-related policies. Well-written, easy to read employee policies go a long way in setting employee expectations and preventing issues that might land your company in front of the EEOC, the DOL, or a jury of twelve. And if that's not enough motivation, remember – spending the time and money now to update your policies could save you money in the long run.

Employee handbooks aren't one size fits all nor are they implement-and-forget-kind-of-documents. Employment law is one of the most rapidly changing areas of law, so pull out that employee handbook and make sure that your policies and procedures comply with the most current federal, state, and local laws.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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