The United States Department of Labor (DOL) announced its final overtime rule on Sept. 24, which set the minimum salary threshold for overtime eligibility at $35,568.
The threshold is slightly higher than the $35,308 proposed in the initial draft of the rule in March. It also allows employers to count non-discretionary bonuses, incentives and commissions for up to 10% of an employee’s salary level, as long as those bonuses are paid annually. The Fair Labor Standards Act’s exemption threshold for highly compensated employees (HCE) will be set at $107,432, which is significantly lower than DOL’s initial draft that set it at $147,414 per year, but higher than the previous threshold of $100,000.
In its Fair Labor Standards Act comment letter submitted to the DOL's Wage & Hour Division in May, WorldatWork agreed with the proposed overtime rule threshold but advocated for changes to the highly compensated employee threshold.
Some have argued the minimum salary level, which breaks down to $684 a week, is too low. Tammy McCutchen, a principal at Littler Mendelson P.C., asserted that the DOL got it right.
“The new salary level will work everywhere in the country without harming economies in the South and Midwest, and adding new unjustified costs to small businesses, non-profits, local governments, colleges and universities, and the restaurant and retail industries, which are already struggling to meet increased minimum wage and paid sick leave requirements,” McCutchen said. “It may seem low for employees in California, New York and other states with high costs of living. But, like the minimum wage, those states can and have adopted a higher minimum salary for exemption.”
The DOL said the agency has not set a timeframe for any automatic updates to the overtime eligibility threshold beyond what is included in the final rule. The DOL also said the final rule released on Tuesday will not make changes to the FLSA’s “duties test.”
The final rule will go into effect on Jan. 1, 2020.
Next Steps for Employers
Employers have been given 99 days to implement the new overtime rule standards into their organization. To assist employers with this process, WorldatWork is currently updating its FLSA toolkit to reflect the new overtime rule. This member-only resource includes compliance tips for employers. The following steps are a great place for employers to start:
- Review the final rule as it appears in the Federal Register. White papers, summaries and outlines of the recent changes are helpful, but it is important to reference the actual regulations to ensure your company is in compliance.
- Provide training to other human resources professionals, managers and supervisors who will assist with the internal FLSA audit. It is important for anyone participating in the FLSA classification of employees to fully understand the regulatory changes.
- Assess the salary levels of employees currently classified as exempt:
- Identify exempt employees currently earning less than $684 per week ($35,568 per year).
- Identify employees currently exempt based on the minimal duties test for highly compensated employees (HCE) who earn over $107,432 per year.
- Re-evaluate employees formerly classified under the HCE exemption earning over $107,432 per year against the standard duties requirements of the appropriate exemption test.
- Compile a list of employees who will no longer qualify for exemption under the new rule given their current salary and duties, along with potential options and associated costs to achieve compliance. Options include:
- Adjust salary to new minimum and maintain exemption.
- Reclassify to nonexempt, and
- Maintain pay level and hours worked, paying time and a half for hours worked over 40 each week, or
- Reduce salary and/or reduce or eliminate overtime hours worked (may require additional staff or increase in hours worked by other employees to cover workload).
- For employees formerly classified under the HCE exemption, adjust job duties to qualify against standard duties requirements of the appropriate exemption test.
- Other options to offset costs:
- Cut staff
- Cut/reduce staff benefits.
- Review this information with the organization’s senior management to discuss options, along with advantages and drawbacks of each, to arrive at an informed course of action.
- Make any necessary classification changes.
- At a minimum, communicate changes to affected employees. Be sensitive to the effect on affected employees (e.g., benefit eligibility, perceived status). At any point in your compliance process, you also may want to issue a general communication about the regulatory changes and offer employees a contact should they have any questions.
- Review organizational pay practices to ensure that all nonexempt employees are properly paid for all time worked including overtime, and update those policies and procedures as necessary.
- Initiate training for any managers and supervisors not involved in the compliance audit process to educate them about their role in remaining FLSA compliant.
About the Author
Brett Christie is a staff writer at WorldatWork.