Overtime Pay Rules Have Changed: Are You Prepared?

On January 1, 2020, the Department of Labor's new rules regarding overtime pay go into effect. The new rule raises the threshold requiring overtime pay for salaried workers. For millions of U.S. businesses, this means that workers who weren't eligible for overtime pay in the past must now be paid 1.5 times their usual hourly wage for overtime work.

What Does the New Rule State?

The new rule states that, in order to be exempt from overtime under the federal Fair Labor Standards Act (FLSA), employees must:

  • be paid at or above the threshold salary amount required by law, and
  • meet certain duties tests.

Workers who are paid less than the threshold, or who don't meet the duties tests, must be paid 1.5 times their regular rate for each hour worked beyond 40 hours in a workweek.

The new rule parallels one proposed by the Department of Labor under the Obama administration, which would have doubled the salary threshold. A federal court, however, found that an increase of that size exceeded the Department of Labor's authority. The new rule also does not create an automatic adjustment for the threshold each year, as the former proposed rule did.

How to Identify Workers Covered by the New Rule

The first prong of the new rule depends on the worker's salary. These changes raise the salary threshold from $455 a week or $23,660 per year to $684 a week or $35,568 per year.

In other words, starting January 1, 2020, workers who make less than $35,568 per year must be paid overtime if they work more than 40 hours in a week. When it comes to determining overtime eligibility based on pay, employers have a choice: Pay overtime, or give employees a raise that puts them over the $35,568 threshold.

Up to 10% of the annual salary amount can come from payment of nondiscretionary bonuses, as well as incentive payments like commissions.

Workers who make $35,568 per year or more may also be eligible for overtime pay if they do not meet the Department of Labor's duties test. Under the duties test, overtime exemptions apply only to white-collar professionals in certain positions.

Auditing Job Descriptions for Accuracy and Compliance

FLSA Section 13(a)(1) exempts employees in bona fide executive, administrative, professional and outside sales jobs from overtime requirements, even if they make less than the $35,568 annual salary threshold.

Simply labeling an employee with an executive, administrative, professional or outside sales title isn't enough to claim an exemption, however. The worker's actual daily job duties must also meet the guidelines set out by the Department of Labor.

As a result, many businesses may need to audit their official job descriptions in order to ensure the description both accurately reflects the employee's daily tasks and it fits within the Department of Labor's definitions for executive, administrative, professional or outside sales work.

How to Inform and Train Your Teams

In the face of these rule changes, employers will need to ensure their teams understand how to apply new policies and procedures for compliance.

For instance, human resources staff and supervisors will need to understand how the new salary threshold applies in order to accurately classify employees as either exempt or non-exempt. They will also need to understand how the duties tests apply to various employees. It's wise to have your staff review updated job descriptions, so they can draw real-world connections between the duties tests and the work individual employees complete each day.

In addition, some businesses may need to change, update or implement methods for tracking employees' work time throughout the day or week. Since the increased salary threshold is expected to make over a million workers eligible for overtime, tracking workers' time is essential to ensure compliance with the new rules.

Seeking the Help You Need

Implementing new policies or plans to comply with federal rules can be tough, but you're not alone. If you need assistance, reach out to a staffing firm.

Your staffing partner can help in several ways. For example, they can connect you to qualified temporary workers who can lift some of the load from your core staff, reducing the need to pay overtime. They can also help you review your current plans and policies in order to maintain compliance without derailing your business goals.