In a surprise early today, the U.S. Department of Labor (DOL) announced it will publish a final overtime rule. This rule will set the minimum salary threshold for overtime pay eligibility at $35,568. These regulations implement the Fair Labor Standards Act overtime mandate.
In this short article, we’ll detail the new DOL overtime threshold, and tell you how it differs from previously proposed rules. Then we’ll tell you what your company should do to prepare itself for the implementation of this new regulation.
What’s the DOL’s Overtime Rule?
The current overtime rule sets the salary amount employees must make to be exempt from receiving time and a half overtime pay at $23,660. The newly passed rule increases this threshold by over $11,900. While this marks a significant increase from the current limit, it’s significantly less than the $47,000 threshold proposed under the Obama administration.
Similarly, the new proposal differs from the previously proposed threshold by not making any changes to the duties test for exemption from the overtime rule. Also, unlike the previous proposal, the new requirement is based on an employee’s weekly guaranteed salary, not just an annual figure.
What’s different this time?
As previously stated, the newly passed overtime threshold is lower than the Obama administration’s proposed threshold. But, it’s slightly higher than the $35,308 proposed in the initial draft of the rule. The new regulation also allows employers to count non-discretionary bonuses, incentives, and commissions as up to 10 percent of an employee’s salary level, if those bonuses are paid annually.
The new rule will set the FLSA’s exemption threshold for highly compensated employees at $107,432. This threshold is lower than the DOL’s initial draft but is still higher than the previous threshold of $100,000. As of now, there’s no time frame for any automatic updates to the overtime threshold beyond what’s included in the final rule.
When Does the New Overtime Threshold Go into Effect?
The final rule will go into effect on January 1, 2020. This implementation date gives employers 99 days to comply with the new regulation. It’s estimated the new threshold will make an estimated 1.3 million additional workers eligible for overtime pay.
What Should You do to Prepare?
Here are a few tips your company should take to prepare itself for the new DOL overtime threshold for exempt employees.
1. Start Auditing Your Employees
The first step all employers need to take to prepare for the new overtime rule is to determine which employees won’t be affected by the new law. Exempt employees must both earn more than $35,568 and work in a specifically-defined executive, administrative, professional, computer, and outside sales roles.
You should go through every exempt employee’s salary and job duties and determine whether they should remain classified as exempt. The duties test is especially vital. There’s a chance, as an employer, you may have misclassified some current workers. These employees make a salary above the current threshold, but the day-to-day work they do doesn’t pass the duties test.
2. Determine How You’ll Handle Pay Increases
What will your company do with those employees who’re currently exempt from the overtime rule, but wouldn’t be under the new law? Your company will have to decide whether it wants to increase these employees’ base salary or pay them overtime.
As previously mentioned, the new rule would allow employers to count certain nondiscretionary income as up to 10 percent of an employee’s salary when determining their exempt status. This rule is crucial because it counts payments made annually. Companies had to make these payments quarterly or more frequently to count toward the threshold, under the Obama administration’s policy.
If your company does decide to change its pay structure, you should do so carefully. Have a discussion with in-house executives, accountants, and department heads in charge of budgets before you communicate any of these changes.
3. Train and Communicate
You should train managers to know what activities constitute work for their employees. Similarly, your leadership should know who will be exempt under the new rule, and who won’t. Plus, they need to know who qualifies as an exempt individual and what duties qualify them for this exemption.
Also, make sure your business has a plan to effectively communicate any news or changes related to the overtime rule. Make sure your company takes its time and selects the best communication methods for your employee population. For example, if your employees skew younger, communications through video or games are more likely to be effective than a printed flyer.
Don’t work overtime to figure out how your company will deal with this new overtime threshold. If you need any help contact me, Roxy Kolev at [email protected] or at 402.800.3907.