As businesses begin a new year and HR professionals ensure that all regulatory compliance is in place, now is a good time to review overtime exemption rules. This area continues to be the basis for the greatest number of lawsuits filed in the United States and one of the costliest from which to recover. Employers are often shocked at the impact of one employee complaint to the Department of Labor (DOL) which can result in a DOL audit, and usually encompass a two-year review of all payroll records.
On September 24, 2019, with an effective date of January 1, 2020, the DOL released a final overtime rule which set the minimum salary for the exemption of overtime pay under the Fair Labor Standards Act (FLSA). The salary threshold for this exemption was raised from $23,660 to $35,568 a year. This was the first increase since 2004 and was a more moderate increase from the proposed $47,476 that was on the table in 2016. It is important to note that the final rule allows employers to use non-discretionary bonuses and incentive payments (including commissions), that are paid out to satisfy up to 10 percent of the salary level. The DOL estimated that approximately 1.3 million workers would become eligible for overtime pay and that the rule would significantly benefit workers in multiple industries such as health services, wholesale and retail, education, hospitality and manufacturing.
Here are some key components that HR professionals need to know:
- Employees paid less than $35,568 a year or $684 weekly are entitled to overtime pay regardless of their classification as a manager or professional.
- The final rule allows employers to use paid non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the salary level.
- It is important to still follow the exempt/non-exempt rules as there were no changes to the duties test. Clarification on these rules can be found on the DOL’s website. https://www.dol.gov/agencies/whd/fact-sheets/17a-overtime
- The annual minimum compensation for “highly compensated employees” was increased from $100,000 to $107,432.
Given the new thresholds of this final rule, it is important to take steps to ensure that any exempt employees do not lose their status. Consider increasing their salaries or providing other compensation that would maintain their salary levels above the threshold for exempt status. Also, in general, it’s a good idea to examine all payroll practices to make sure that all employees are properly classified.