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New Overtime Rules are Coming

On September 24th the Department of Labor (DOL) announced important changes to the Fair Labor Standards Act (FLSA) which will go into effect January 1, 2020.  It is estimated that these changes will impact more than 1.3 million American workers, so there is a high likelihood that this will affect your organization. Before looking at the pending changes, a review of the Overtime requirements may be helpful.

Overtime Basics

According to the Fair Labor Standards Act, unless specifically exempted, all employees must receive overtime pay for all hours worked in excess of 40 hours in a workweek. This overtime is to be paid at a rate of not less than 1.5 times their regular rate of pay.

In order to properly be classified as exempt, employees must meet three specific requirements:

The Salary-Basis Test

Employees must be paid a predetermined, fixed salary each pay period. This salary cannot vary based on the quality and/or quality of their work. So, their full salary must be paid for any week in which he or she performs any work.

The Salary-Level Test

Their salary must meet a minimum salary threshold of $23,660 annually, and…

The Duties Test

Their primary duties must meet one of the exemption criteria provided by the Department of Labor. 

The announced changes impact only the Salary-Level Test. However, the DOL has made enforcement of the Duties Test an area of emphasis, so it would be a good practice to review employee job descriptions and work activities to ensure complete compliance. 

An Overview of the Changes

Beginning January 1st, the following adjustments will be made to the Salary-Level Test:

  • The salary threshold for exempt employees will be raised from $23,660 to $35,568 per year.
  • The highly compensated employee threshold will move from $100,000 to $147,414 annually.
  • Employers will be able to use discretionary bonuses and incentive payments to satisfy up to 10 percent of that threshold. These payments will need to be made at least annually. If the employee falls short of the limit, employers are permitted to make a catch-up payment.  

Looking Ahead

As you look forward, it is important to first identify any employees, currently classified as exempt, whose salary is less than $35,568. Once those employees have been identified, an examination of their tasks, along with an estimate of the number of hours they are currently working will help you determine your next steps. Will you raise their salary to satisfy the new minimum? Will you recategorize them as non-exempt and pay them overtime? Will you adjust their duties in order to keep their hours in a certain range? These are important questions that can be addressed once you gather the data.  

Our next post will address some important issues to consider when adjusting employee status. In the meantime, here are a couple links that might help you prepare for the new rules:

Department of Labor Fact Sheet. 

https://www.dol.gov/whd/overtime2019/overtime_FS.htm

Department of Labor FAQs

https://www.dol.gov/whd/overtime2019/overtime_FAQ.htm

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for legal advice. If you have any legal questions regarding this content or related issues, then you should consult with a labor attorney for advice.

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