If you are a non exempt employee or you have non exempt employees in the US, times are about to change! Since 2004, overtime threshold rules have stayed the same, meaning no cost of living increases were applied to the threshold for who’s required to be paid overtime. The Obama administration took up the issue and directed changes to the overtime laws that would have greatly expanded the number of eligible workers, but those changes were preempted only days before going into affect by the incoming Trump administration. Now, nearly 3 years later the rules are finally slated to change, but severely watered down from the previous plan.
On Sept. 24th, 2019 the US Department of Labor (DOL) announced their final overtime rules that will affect many Americans workers and employers alike. In fact, the new overtime rule will make overtime pay available to over 1.3 million workers and will provide an estimated $298.8 million in additional pay. The new overtime rules will become effective officially on Jan 1st, 2020. Here’s what you need to know:
What is the final overtime rule?
The final rule updates the salary and compensation levels needed for workers to be considered exempt by changing the overtime threshold. Up until now, non-exempt workers who earned less than $23,000 a year (or $455 per week) could claim overtime after 40 hours in a workweek. The new rule has raised that threshold to $35,568. Therefore, anyone making under $684 a week will be eligible for time and one-half pay after 40 hours in a workweek. The previous administration had the threshold set at roughly $47,000 before it was put on ice. Also, unlike the previous administration’s proposed changes, the new rules by the Trump administration don’t provide for annual or other types of periodic increases.
Not only will the standard salary level change, but the total annual compensation requirement will also change. The total annual compensation is a total of all compensation provided to an employee. For instance, this may include bonuses and commissions, paid time off, retirement plans, and more. That being said, the total annual compensation requirement for highly compensated employees will be $107,432 per year instead of $100,000 per year.
Along with compensation and salary requirements, employers will now be able to use bonus and incentive payments to satisfy an employee’s salary. Employers can use nondiscretionary bonuses to satisfy up to 10% of the standard salary level.
Finally, the DOL also revised special salary levels for those in U.S. territories and those in the motion picture industry. The department is maintaining the special salary in American Samoa at $380 a week. This is lower than the overall rate because minimum wage rates have remained lower than the federal minimum wage. Additionally, the DOL is setting a special salary level of $455 per week for employees in Puerto Rico, the U.S. Virgin Islands, Guam, and the Commonwealth of the Northern Mariana Islands. Also, those who are in the motion picture industry have a new “base rate” threshold of $1,043/week.
Is the overtime rate still the same?
Yes! The Fair Labor Standards Act (FLSA) overtime policy is still the same. As of right now, unless specifically exempted, employees covered by the FLSA must receive one and one-half times pay every hour after 40 hours in a workweek. Keep in mind that your state may have its own overtime regulations, and the FLSA does not prevent a state from creating its own rules. If your state establishes more protection than the FLSA, then the higher standard applies.
How do I know who qualifies as exempt?
To qualify as an exempt worker, an employee must meet these requirements:
- The employee must earn payment on a salary basis. This means that the employee gets a predetermined amount that will not reduce based on the hours worked or the quality of work.
- The employee must meet the new minimum salary requirement. The worker must get paid a minimum of $684 a week, which is equal to at least $35,568 annually.
- If the employee primarily performs executive, administrative, or professional duties, as defined in the Department’s regulations.
What steps should you take?
If you have employees, make sure to put them in the correct exempt or non-exempt category. Your employees may not be considered exempt now, but their status may change with the new rule going into effect on January 1st, 2020. The FLSA also has a great guide to help you figure out whether an employee should be considered exempt or not. Just keep in mind that the article hasn’t been updated with the new overtime final rule thresholds. Moving forward you should make sure that you’re tracking employee overtime properly. Without proper overtime calculations, your employees will not get compensated correctly. This can lead you to legal trouble down the line, so it’s better to address the issue proactively. One great way to protect yourself if you’re an employer is to find a time tracking solution that allows you to track time accurately and calculate overtime correctly.