FINAL OVERTIME RULE EFFECTIVE JANUARY 1, 2020


December 13, 2019

New overtime rules will commence in the new year that may affect a number of employers and their employees; the US Department of Labor (DOL) has announced their final rule increasing the standard salary level necessary to exempt executive, administrative and professional employees from the overtime pay requirements.
 
The Change
 
Effective January 1, 2020, the ruling will increase the standard (minimum) salary level to $35,568 per year, or $684 per week for a full-year worker. If an employee is not paid at least the threshold amount, then they must be paid overtime, or 1.5 times their regular hourly rate for hours worked in excess of 40 in a workweek. The rule does allow nondiscretionary bonuses and incentive payments, including commissions, to be used to satisfy up to 10% of the standard salary level. The threshold for highly compensated employees was also increased from $100,000 a year to $107,432.
 
In addition to the salary level requirements there are also job duty requirements which remain in effect in order to be able to classify employees as exempt. These are considered the "white-collar" exemptions and include executive, administrative, and professional job duties.
  • Executive exemption - primary job duties include managing the business or a division, regularly managing multiple employees and the authority to hire and fire workers
  • Administrative exemption - primary job duties include office or non-manual work that is directly related to the management or general business operations of the employer
  • Professional exemption - primary job duties must be work requiring advanced knowledge in a field that is customarily acquired by prolonged, specialized, intellectual instruction and study
 
The new rule does not call for automatic annual adjustments to the salary threshold; however, the DOL does intend to update the thresholds from time to time.
 
Seasonal Hires
 
Generally, if your business operates all year, then your seasonal hires are typically covered by the Fair Labor Standards Act (FLSA) entitling them to minimum wage and overtime. Businesses that operate for only a portion of the year may be exempt from overtime. Specific businesses, such as amusements, religious, educational and recreational establishments are exempt. Otherwise, specific requirements can be met to determine if a business is exempt. Businesses must follow the higher standard of pay, meaning that even if a business qualifies for exemption from Federal law, state and local laws may still apply.
 
Recommendations
 
Employers should review their records and identify employees who are currently earning below the salary threshold. For employees earning near or below the threshold and who meet the job duty requirements above, it may make sense to increase their salary. Employers should weigh the costs of a salary increase against the potential overtime the employee(s) would earn.
 
It will also be important to consider how any changes are communicated. Some employees may be moved to nonexempt status and become eligible for overtime and employers will need to make sure these individuals know they are not being demoted, but that this is due to the new rules.
 
Employers may also need to evaluate their systems for time-keeping and for managing or limiting overtime hours.
 
If you have questions or concerns, consult with your CPA about these new overtime rules and develop a comprehensive strategy for addressing any changes that may be needed.



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