Overtime Rules Are Finally Settled: How Will They Impact Your Business?

If you feel like you’ve been hearing about overtime changes for years, you’re not wrong. When the changes were first introduced under the Obama administration in 2016, they were hotly debated. In September of this year, the Department of Labor (DOL) announced the final rule, which splits the difference between the proposed 2016 regulation and the existing rule.

The effective date of the change, January 1, 2020, is just around the corner, and according to the DOL, an additional 1.3 million U.S. workers are expected to be eligible for overtime. We want to help make sure you know if your employees will be affected.

How will this impact your business? 

The salary requirement to exempt employees is increasing to $684 per week ($35,568 annually) from the current level of $455 per week ($23,660 annually). This means that employees who make less than $684 per week become non-exempt. For example, an employee who makes $600 per week would now be eligible for overtime pay. 

Before we get into other details, here are some things you should consider to make sure you are prepared for the new rule:

• Consider an overtime reporting system. If more of your employees will be eligible for overtime pay, you’ll need an accurate way to report time.
• Address flexible working hours. If your employees can work outside the typical 9-5, how do they report their time? 
• Set expectations. Conversations may need to take place if employees reach 40 hours. Are they allowed to work overtime if needed, or should they ask permission?
• Consider raises. If employees are close to the new earnings threshold, you may want to consider increasing wages to avoid these new overtime rules.

With the final rule, employers can use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the standard salary level. This can lower the weekly salary of an employee, but ensures they keep their exempt status. For example, instead of guaranteeing a salary of $684 per week to reach the threshold, an employer could pay $615.60 per week and distribute bonuses, incentive pay, or commissions at the end of the year to reach the $35,568 threshold. If an employee does not meet the threshold during the annual period, their employer can make a one-time payment to cover the remaining amount. 

Other DOL changes

Those in management, executive, or business-owner roles, will have a higher threshold for the highly compensated employee (HCE) classification. The total annual compensation exemption level for HCE is increasing from $100,000 to $107,432 per year.

The final rule also revises the special salary levels for certain employees. They are: $380 per week for American Samoa, $455 per week for Puerto Rico, U.S. Virgin Islands, Guam, and the Commonwealth of the Northern Mariana Islands, and $1,043 per week for those in the motion picture industry. 

Please note that all employers are encouraged to review their employees' job duties to ensure they meet the exemption requirements. 

For more information, visit https://www.dol.gov/whd/overtime2019/index.htm.