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How Employers Should Prepare for the New Federal Overtime Regulations

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On September 24, 2019, the U.S. Department of Labor (DOL) issued a final rule that amends the Fair Labor Standards Act (FLSA) Overtime Regulations. The new regulations are effective as of January 1, 2020. The final rule will change the following:

  • The minimum annual salary for exempt employees will increase to $35,568 per year ($684 per week).
  • The minimum annual salary for highly compensated employees will increase to $107,432.
  • Employers will be able to include nondiscretionary bonuses and incentive payments, including commissions to satisfy up to 10% of the standard salary level test, provided these payments are made at least annually.

What Does This Mean for Your Business?

Preparation should begin by reviewing all of your wage and hour processes and policies. Ensure that policies are updated, if necessary, to account for the new regulations.

The next step is to determine if there are employees who must be switched from exempt to non-exempt (due to the salary threshold increase from $24,660 per year to $35,568). This allows those affected to become eligible for overtime pay under the new rules.

With the need to reclassify some employees, you will want to consider their compensation. One option might include increasing pay to (or above) the new threshold in order to maintain their exempt status. Another option is to reclassify the employees as non-exempt and then pay them overtime (or, if necessary, simply restrict hours to a maximum of 40 hours per week).

You must decide whether to account for incentive pay, as a part of the minimum salary level (as is permitted under the final rule). Non-discretionary bonuses, incentives and commissions (paid annually or more frequently), can account for up to 10 percent of the minimum salary threshold. Further, it should be noted that incentive pay will be included in the employee’s regular rate of pay, when calculating overtime pay rates.

You should also review the duties tests for those employees remaining in exempt status. Though the duties tests have not changed with the final rule, it’s a good practice to review them – if only to ensure that your employees are properly classified.

Making the Complex Simple

These FLSA changes could impact your business significantly. By staying up-to-date and proactive when it comes to regulations, your company or organization will be in a much better position.

Portions courtesy of HRWS.

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