New overtime rules issued by The U.S. Department of Labor (DOL) are scheduled to go into effect on January 1, 2020. It’s important to understand these changes both for your own agency and as an issue that affects your commercial clients.
This is the first change to the exemption rule contained in the Fair Labor Standards Act (FLSA) since 2004. DOL estimates that the change will affect more than 1.3 million employees who are currently exempt from overtime but will now be eligible for time and a half pay. Under the new rules, employees would have to earn at least $684 a week ($35,568 a year) to be exempt from overtime pay for any hours worked over 40 in a work week. This is a significant increase from the current threshold of $23,660 a year, but also a significant drop from the Obama-era threshold of about $46,000, which was rejected by the courts. It kicks in at just over $17 per hour.
In addition to the salary threshold noted above, HR Daily Advisor summarizes these other changes in the new rule:
It raises the total annual compensation level required for individuals in the “highly compensated employee” exemption (subject to a minimum duties test) from $100,000 to $107,432.
It allows employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level.
It revises the special salary levels for workers in U.S. territories and in the motion picture industry.
To be exempt from the overtime pay requirement, employees must earn more than the overtime salary threshold and perform work that is classified as executive, administrative, or professional in nature. The most common exemptions for the new rule are for doctors, attorneys, teachers and outside sales employees.
In his recommendations about what employers need to do to be ready, employment law attorney Adam Gersh says that employers need to begin reevaluating which employers will be overtime eligible under this rules to be ready for January 1. In addition, he says:
“Second, employers should take steps now to ensure they are properly using the white collar exemption, including for employees with salaries above the threshold. Employers need to remember that a salary that meets the threshold does not in and of itself make an employee exempt from overtime. Separate and apart from the Final Rule, there are specific tests for executive, administrative, professional, computer, outside sales and highly compensated employee exemptions that depend on the duties those employees perform. Those tests have evolved over time, and recent court rulings have refined and narrowed their application. ”
Confusion about exempt vs nonexempt
Many people are confused by the terms “exempt” and”nonexempt” employees. Exempt employees are exempt from a variety of FLSA worker protections. one of them being overtime. Exempt employees might include senior managers, outside sales staff and various professionals. Nonexempt employees, on the other hand, must be paid overtime – they are NOT exempt from overtime and other FLSA worker protections. Some employers have the mistaken notion that just giving someone a salary instead of paying them hourly makes them “exempt” and the employees therefore don’t need to be paid OT. Nope, there is more to classifying the job than that – there are several criteria that need to be met. See HR expert Mike Haberman’s post What exactly does “exempt” mean? (but note that he is using numbers BEFORE the new rule adjustments)”
Here are some additional resources on the new overtime rules to learn about your obligations
- DOL Final Rule: Overtime Update – including FAQs
- DOL Fact Sheet: Final Rule to Update the Regulations Defining and Delimiting the Exemptions for Executive, Administrative, and Professional Employees
- DOL: Small Entity Compliance Guide To the Fair Labor Standards Act’s Exemptions
- The DOL’s New Overtime Rule and What it Means for U.S. Employers
- What employers need to know about the new overtime exemption regulations