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New Overtime Rules Effective January 1, 2020

The DOL recently finalized its new rules effective January 1, 2020, to determine whether an employee qualifies as exempt from overtime under the Fair Labor Standards Act (FLSA).

What has changed?

  • The salary threshold for the executive, professional, administrative, and computer employee exemptions will increase from $455 per week ($23,600 annually) to $684 per week ($35,568 annually). The threshold replaces the 2016 proposed increase ($47,476 annually), which never went into effect.
  • Employers may use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the salary threshold requirement annually. A final “catch up” payment is permitted within one pay period after the end of the year to bring an employee’s compensation to the required level.
  • The salary threshold for the highly compensated employee exemption will rise from $100,000 to $107,432 annually.
  • The salary threshold will be updated more regularly in the future by the DOL (the last update was in 2004). There will not be automatic updates every three years, as proposed in 2016.

What should employers do?

  • Pull data for exempt employees earning below $35,568 annually and weigh the cost of raising salaries above the new threshold against the cost of classifying as nonexempt and paying overtime.
  • Carefully review the job descriptions for exempt employees. Meeting the salary threshold is just one requirement when determining how to classify an employee properly. The exemptions also require the employee to fulfill specific duty tests.
  • Remember to keep state laws in mind. There are differences between FLSA and state laws that may impact how an employee is classified.
  • Develop a communication strategy for reclassified employees to ensure they understand the change is based on a new DOL rule. Newly classified nonexempt employees will need to be trained on how to record all hours worked accurately.

The above summary provides a general overview of the new rules effective January 1, 2020. With the complexity of wage and hour laws, it can be overwhelming for many employers to ensure compliance. If you have questions on this article or any other HR issue, please reach out to us.

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