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You may have heard about changes to the rules governing overtime pay. The new rules, which the Department of Labor (DOL) announced in September 2019, carry an effective date of January 1, 2020. The changes are significant, so you’ll want to make sure you’re in compliance with them.
What has changed?
Perhaps the biggest change is the increase in the earnings threshold required to exempt many executives, administrative and professional employees from the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA). Now, before a worker can be considered exempt from overtime pay requirements, he or she must earn at least $684 per week, or about $35,568 annually. That’s up from $455 weekly, or about $23,660 annually.
With the new regulations, about 1.3 million more workers across the United States likely will be eligible for overtime pay, the DOL has estimated. The new earnings threshold recognizes the growth in wages since the previous threshold went into effect in 2004.
In another change, your business now can use nondiscretionary bonuses and incentive payments, including commissions (if paid at least annually), to satisfy up to 10% of the standard salary level. If an employee doesn’t earn enough from his or her nondiscretionary bonus or incentive payment in a year to retain exempt status, you can make a “catch-up payment” within one pay period at the end of the 52-week period.
Who is affected?
The FLSA generally applies to businesses with annual gross sales totaling at least $500,000, and, even when a business’s sales are below that amount, to individual employees if their work involves interstate commerce or producing goods for such commerce. In addition, some employers, including schools, hospitals and public agencies, are covered by the FLSA without regard to the sales volume or interstate commerce requirements.
Most employers who allow or ask nonexempt employees to work overtime — that is, more than 40 hours in a workweek — must pay them overtime, at a rate that’s at least one and one-half times their regular rate of pay. Moreover, employees’ regular rate of pay must at least equal the minimum wage.
As an employer, you can’t average employees’ hours over multiple workweeks. You also can’t waive your obligation to pay overtime, even if an employee agrees to it. If the city or state in which your business is located has enacted overtime regulations more stringent than those of the FLSA, you’ll need to comply with the tighter standards.
Who is exempt?
You can claim an exemption from overtime regulations for employees who are “bona fide executive, administrative, professional and outside sales employees.” Such employees typically must meet three conditions:
1. You must pay the employee a predetermined, fixed salary that doesn’t vary based on the quality or quantity of work.
2. The salary generally must meet at least the minimum level, which now is $684 per week. (The salary level test doesn’t apply to several types of employees, such as outside salespeople and lawyers.)
3. The employee’s job responsibilities must primarily involve those associated with exempt executive, administrative, professional, outside sales or computer work.
Further, to be considered an executive, the employee must manage the enterprise or one of its departments. He or she should regularly direct the work of at least two full-time equivalent employees. An executive should have the authority to hire or fire other employees, or his or her input regarding the hiring, firing, promotion, and advancement of other employees should be given particular weight.
Are you in compliance?
For further guidance on the new overtime rules and how to comply, contact us. We can assist you in distinguishing between exempt and nonexempt employees.