Beginning January 1, 2020, the Department of Labor’s (DOL) New Salary Limits for Overtime Exemptions will take effect, making it possible for more employees, regardless of occupation, to be eligible for overtime pay.
The DOL’s long awaited final rule, issued in September, is the first update of earnings threshold in more than 15 years. The DOL estimates more than 1.3 million American workers and an additional 101,800 highly compensated employees (HCEs) will be entitled to overtime pay, accounting for more than $298.8 million in extra pay each year once the new rule is implemented.
The final rule updates the earning thresholds necessary to exempt executive, administrative and professional employees from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay requirements. It allows employers to count a portion of certain bonuses and/or commissions towards meeting the salary level. Exemptions for these so-called “white collar” employees also include performing certain duties associated with their job descriptions. However, interpretation of these duties is not black and white, making it potentially challenging for employers and a wake-up call for them to be more diligent with providing detailed job descriptions and regular performance reviews. If you aren’t sure where your employees fall under the new rules consult with your benefits advisors as soon as possible to ensure you are complying with the new regulation.
What are the significant changes?
- The standard salary level will be raised from the currently enforced level of $455 per week to $684 per week (equivalent to $35,568 per year)
- The total annual compensation requirement for HCEs will be raised from $100,000 per year to $107,432 per year
- Employers will be allowed to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the new standard salary level
- Entertainment employers take note: Special salary levels for workers in U.S. territories and the motion picture industry will be revised
- The DOL will provide more regular updates for salary thresholds but these will continue to require notice and comment rulemaking.
What do employers need to know and how can they prepare for the changes?
Given these changes go into effect January 1, 2020 now is the time to act. Employers must get an accounting of employees that will qualify under the new salary threshold. For some positions, it may make sense to implement a salary increase. In other situations roles might be restructured and classified as non-exempt.
Any employer with employees who are being re-classified and are now eligible for overtime will need to communicate the changes to their employees to make sure this is not perceived as a job demotion. Furthermore, these changes will require detailed time-keeping and tracking, which may require training of employees and their managers. Along with time tracking, employers might want to consider adapting processes that will facilitate managing, and even limiting, overtime hours of these newly non-exempt workers.
Additionally, even though the final rule does not call for any specific changes on the duties performed by employees, make it a priority to review job duties (as previously referenced) for both exempt workers and newly exempt workers. In some scenarios creating a new set of guidelines for overtime work may ultimately be best for the company’s bottom line.
Have questions? Reach out to your employee benefits advisors to think through the best approach and next steps that need to happen.
Frazier & Deeter’s Employee Benefits & Compensation Practice is comprised of ERISA specialists who help clients with benefit plan design, operation and compliance. If you have questions about the change to over time rules, please reach out to Jeff James, one of the partners in our Employee Benefits & Compensation Practice. Jeff can be reached at Jeff.James@frazierdeeter.com.