As expected, the US Department of Labor (DOL) has issued final salary thresholds for overtime eligibility that are effective January 1, 2020. Employees who now make less than $35,568 annually/$684 weekly will now be overtime eligible.
As I previously wrote in an April blog, the Fair Labor Standards Act (FLSA) was intended to ensure workers were fairly paid for overtime hours worked, and any changes can have a major impact on businesses and cost of wages.
Originally enacted during the administration of Franklin D. Roosevelt, when supplemented by other DOL regulations it covers a variety of workers’ rights including:
Minimum wage ($7.25 per hour currently, which can be overridden if state minimum wage is higher). If you are in Georgia the federal rate is higher.
Overtime eligibility (exempt vs. non-exempt). Using the complex and often vague formula of the FLSA certain employees can be determined to be “exempt” as white collar workers from overtime. There are exemption rules around Executive, Administrative, Professional, Computer-related Professional, and Outside Sales. There is also a minimum salary threshold (now $35,568 annualized/$684 weekly) that is part of the testing for exemption eligibility. One other key update in the new threshold is that non-discretionary bonuses or incentives paid at least annually may be used to satisfy up to 10 percent. This is a good change catching up with modern pay practices, but like all things will also add some complexity in your review.
Overtime calculation (i.e., what wage types are included in overtime calculations). Regular rate of pay includes both hourly pay plus most bonuses, shift differential, on-call pay, and commissions. Unless a type of earnings is specifically excluded it must be used to calculate overtime. (NOTE: this is also where a lot of employers get into trouble, as this also requires you to recalculate overtime paid if/when you pay a non-discretionary bonus). Remember, you HAVE to pay overtime for any hours worked over 40 per week regardless of whether they were “approved”, “authorized”, or “off the clock”.
The latest update concerns the salary “threshold”, which is the first step in testing for “exemption” from the overtime requirements of the FLSA. Said differently, think of it as a “do not pass go” level. If you are paid less than $35,568 you are overtime eligible. End of story. If you are paid more, then it gets more complicated as you need to review the tests outlined above.
What should I do now?
- Identify any employees that currently make lower than the $35,568 threshold and review whether you have them classified as exempt or non-exempt from overtime. If non-exempt and you are paying them overtime there is no issue. However, if you have them as exempt (and you take the time to review step 2 below) you have two choices:
- Increase their salary to above the $35,568 threshold; or
- Reclassify them as non-exempt and start paying overtime
- Take the opportunity to review workers job duties and correct any exemption classification errors. This should also include identification of any potential impact from changes to the salary thresholds. Remember, just because you pay an employee a “salary” does not mean they are “exempt” from overtime.
- Review your overtime calculations with your payroll department or payroll provider. Make sure you know what is included and excluded currently and the impact of any needed changes. It is also a good time to review and make sure overtime is being paid for all eligible hours.
- Plan for the any costs associated with compliance for 2020 budgeting, including increases in non-exempt employees eligible for overtime or the cost of salary increases to raise exempt employees over the new salary threshold.
In addition to reviewing job descriptions and budgets now is also the time to be discussing communication about the changes to employees that are impacted. This is especially critical if there are changes to overtime eligibility.
January 1 is not far away. Make sure you are ready for the changes.
Chris Thomas, SHRM-SCP is the Principal Consultant with The CTCS Group in Canton, GA. The CTCS Group is focused on providing HR Leadership, Behavioral Assessments, and Consulting to help small businesses grow and thrive. You can subscribe to this blog or request a free consultation at www.thectcsgroup.com.
Disclaimer: The information and recommendations provided in this document should not be considered legal advice and should not substitute for legal advice where the facts and circumstances warrant. Recommendations are provided based on good faith assessment and interpretation of the available legal and regulatory resources.