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Blogging Beyond the Numbers

D.O.L. Issues Final Overtime Rule for 2020 – Are You Ready?
Posted by: Swati Jain 2 months ago

On September 24, 2019, the Department of Labor (D.O.L.) issued a Final Rule that updates regulations related to wage and hour (i.e. overtime) rules.  Although these regulations were updated on December 2016, those 2016 changes were subsequently invalidated by a Federal court. The effective date of this new Final Rule is January 1, 2020. 

What has changed, and what does this mean for employers?

The biggest change that impacts most employers is the standard salary level that qualified employees must be paid in order to avoid overtime pay.  This level is changing from $455 per week to $684 per week (the equivalent of $35,568 per year for a full year worker).

Does this mean that, as an employer, I can avoid paying overtime if I pay an employee at least $684 per week? 

Not necessarily, as there are specific duties tests that must be met as well as paying the minimum salary level.  For example, if you pay an employee a salary of $75,000 per year (well in excess of the new minimum), but that employee doesn’t perform any of the qualified duties, then you would still need to pay overtime for any hours in excess of 40 per week. 

In addition to the standard salary level, the total annual compensation for “highly compensated employees” is changing from $100,000 to $107,432 per year.

The new rule also allows employers to use discretionary bonuses and incentive payments, including commissions that are paid at least annually to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices.

Furthermore, the Final Rule revises the special salary levels for workers in U.S. territories and in the motion picture industry.

There are generally three tests that must all be met in order to be exempt from the overtime requirements:

  1.  An employee must be paid on a salary basis not subject to reduction based on quality or quantity of work (“salary basis test”);
  2. The employee’s salary must meet the new minimum salary level ($684 per week); and
  3. The employee’s primary job duty must involve the kind of work associated with exempt executive, administrative, or professional employees (the “duties test”)

The Final Rule does not alter any of the existing job duty requirements to qualify for an exemption.  These job duty requirements are often referred to as the “white collar” rules.  There are several categories of exempt employees.  The department estimates that, as a result of the Final Rule, approximately 1.3 million employees that are currently exempt from overtime pay will now become eligible for overtime pay.

As a business owner and employer, what steps do I need to take to make sure I am in compliance on January 1, 2020?

  • Evaluate all employees, or classes of employees, to determine whether the current classification (exempt or non-exempt) is correct according to the Final Rule.
  • Consider changing duties among certain employees in order to help meet one of the duties exemptions, or reorganize workloads or schedules to minimize overtime.
  • If you have employees currently performing exempt duties, but paid less than the new minimum ($684 per week), you will need to figure out the best way to get into compliance. The options may include changing salaried employees to hourly (and then pay overtime if necessary) or increasing the salary to the new minimum.    
  • Communicate the need for these changes with your affected employees.  Beware that a change from salaried status to hourly status may feel like a demotion to some employees!

This is just an overall summary of the wage and overtime Final Rule from the D.O.L.   There are additional requirements and situations that could also come into play.  Please contact Wegner CPAs if you would like more information on these changes.

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