Are You Ready for the New Federal Overtime Rule?

The U.S. Department of Labor issued its final rule amending the overtime regulations that take effect January 1, 2020. To be exempt from overtime under the Fair Labor Standards Act's (FLSA's) white-collar exemptions, employees must be paid a salary of at least the threshold amount and meet certain duties tests. If they are paid less or do not meet the tests, they must be paid 1.5 times their regular hourly rate for hours worked in excess of 40 in a workweek.

The new rule will raise the salary threshold to $684 a week ($35,568 annualized) from $455 a week ($23,660 annualized). Non-discretionary bonuses and incentive payments, including commissions, paid on an annual or more frequent basis may be used to satisfy up to 10 percent of the standard salary level. The U.S. Department of Labor said the rule will make about 1.3 million workers newly eligible for overtime pay.
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In addition to raising the salary cutoff for exempt workers, the new rule raises the threshold for highly compensated employees from $100,000 a year to $107,432, of which $684 must be paid weekly on a salary or fee basis. 

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Employers with employees whose compensation will be affected by the new rule have some planning to do this fall.  The questions for those employers to answer include:

• Will you raise salaries of exempt workers to the new minimums? Or will you reclassify them to overtime-eligible?
• Will you take advantage of your right under the new rule to use bonuses, commissions, or other incentive compensation as a credit toward the new salary threshold?
• Does your workweek coincide with the effective date of the new rule (a Wednesday), or does it begin, for example, on the Sunday or Monday before the change? If so, are you prepared to pay your exempt employees at least $684 for the work week in which January 1 falls?
• If you will reclassify some employees to overtime-eligible:
  • What are your communication plans?
  • Are your colleagues in Human Resources, payroll, benefits, and elsewhere prepared for the change in classification?
  • Are you ready to manage the potential overtime costs?
  • Do your supervisors understand what kinds of hours are considered “hours worked” (e.g., certain travel time, time spent working from home or remotely, etc.)?
  • When will you start counting “hours worked” if January 1 falls in the middle of your workweek?
  • Have you considered the alternatives to paying reclassified employees on an hourly basis?

​Employers should note that cities and states can set higher exempt salary thresholds, and those rates may be rising in 2020, too.
 
Article adopted from SHRM 2019.