New Overtime Rules - Are You Ready?

Published 02/04/2020
If you thought you have overtime procedures under control, you probably may want to re-think that. As of Jan. 1, 2020, the Department of Labor has mandated, under the Fair Labor Standards Act (FLSA), new overtime rules. One of the most important outcomes of these new requirements is that the final rule makes 1.3 million American workers eligible for overtime pay.
Non-exempt employees must receive overtime pay for hours worked that surpass 40 hours in any work week. This pay must be a minimum of 1 and one half their standard wage. As long as the worker is at least aged 16, there is no limit on the number of hours they can work in a week. As long as the employees hours do not exceed 40, overtime is not mandated, even if those hours are on Saturdays, Sundays, or holidays.
An employee's workweek is a fixed and regularly recurring period of 168 hours — seven consecutive 24-hour periods. It need not coincide with the calendar week, but may begin on any day and at any hour of the day. Different workweeks may be established for different employees or groups of employees. Averaging of hours over two or more weeks is not permitted.
How will these changes impact your business?
Previously, the FLSA salary threshold for exemption was $23,660 annually ($455 per week). As of January 1 of this year, the new salary threshold has increased to $35,568 annually, or $684 per week. Obviously, the threshold changes could make previously exempt employees now eligible for overtime.
For any employee to be classified as exempt, they are required to meet all of the following conditions:
  • Be paid on a salary basis
  • Earn at least the FLSA salary threshold of $35,568 annually, and
  • Have executive, administrative, and professional job duties.
As explained by Mike Kappel in a recent Forbes article, The DOL’s new overtime rule also changes the annual compensation requirement for highly compensated employees to $107,432 per year (originally $100,000). Under the FLSA, a worker is considered to be a highly compensated employee if theymeet all of the following qualifications:
  • Earns $107,432 or more per year (originally $100,000 or more per year) 
  • Performs office or non-manual work
  • Regularly performs at least one of the duties of an exempt executive, administrative, or professional employee
Up to 10% of the new exempt salary threshold may be paid in non-discretionary bonus compensation and incentive payments.
Not to be left out, the IRS has weighed in with it's own definition of highly compensated employees. They define this individual as anyone who meets at least one of two conditions:
  • Owned more than 5% of the interest in the business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or
  • For the preceding year, received compensation from the business of more than$125,000 (if the preceding year is 2019 and $130,000 if the preceding year is 2020), and, if the employer so chooses, was in the top 20% of employees when ranked by compensation.
How to handle the changes - if you haven't already...
  • If you are not already using ASN for your staffing needs, you should reach out to us and allow us to take these worries off your hands
  • Reach out to professional staffing organizations, such as ASN for advice. We would love to help.
  • Review exempt employee compensation. Those earning over $35,568 annually will not have any impact on you.
  • Exempt employees earning less than $35,568 - you have a couple of options:
  • Increase their salaries to above the threshold
  • Limit overtime, or
  • Pay overtime wages
The first option above (increases salaries) comes with a morale challenge. If you increase exempt salaries, you should give consideration to also increasing non-exempt salaries. It will decrease the wage gap, avoid wage violations, and increase company morale.
Communicate Communicate Communicate
Any changes, especially those impacting compensation, must be handled and communicated diplomatically and thoroughly. Changes in pay, job duties, and timekeeping procedures must be explained clearly. Regarding job changes, your nonexempt employees must be aware of:
  • Flexibility
  • Any overtime policy changes and procedures
  • Any task redistribution
Make sure that every affected employee understands and is satisfied with the explanations.
Newly nonexempt workers will find it necessary to start tracking their time. It is imperative that they be properly trained in how to do this.
Should you have any questions, please feel free to reach out to any of our professional at ASN. We can guide you through the changes and ensure that you are following the letter of the (new) law.