Frequently Asked Questions about the New US DOL Overtime Rule
Under the Fair Labor Standards Act (FLSA) new Overtime Rule, it doesn’t matter if you are a smaller company with 5 employees, or a larger company with more than 1,000 employees, you might be affected by the recent changes in overtime pay thresholds.
Read on for our most frequently asked questions about the DOL overtime rule from our clients. We are also running a webinar on the topic that you can register for here.
What is the new overtime rule?
On September 24, 2019, the U.S. Department of Labor announced a final rule to make 1.3 million American workers newly eligible for overtime pay.
The new rule, effective January 1, 2020, increases the weekly salary threshold an employee must cross in order to be considered exempt from the FLSA, and thereby non-eligible for mandatory overtime pay. Under the old rule, in effect since 2004, the salary threshold was $455 per week or $23,660 annually. Under the new rule, the salary threshold will be $684 per week or $35,568 annually.
Who will be affected by the new rule?
The U.S. Department of Labor estimates 1.3 million workers will become newly eligible for overtime pay under the new rule. Those affected will generally be employees who earn a weekly salary between $455 and $684. Under the old rule, they were earning enough to be exempt from overtime; under the new rule, employers will be required to track their hours and pay time and a half for hours worked in excess of 40 in a week.
This sounds familiar. Wasn’t there a similar rule in recent years?
In 2016 the US DOL attempted to implement a similar rule increasing the salary threshold by a much higher amount. This first attempt, however, was derailed. The rule to take effect January 1, 2020 contains the same provisions as in 2016, but with a more modest threshold increase.
Is every employee earning more than the threshold exempt from overtime?
No. For an employer to NOT have to pay overtime to an employee all of the following conditions must be met:
- The employee must be paid on a salary basis AND
- The weekly or annual salary must be above the thresholds– $684/$35,568 effective 1/1/20
- The employee must primarily perform executive, administrative, or professional duties, as defined by the Department of Labor – the “duties test.”
Does the new rule make any changes to the duties test?
No. The duties test remains the same under the new rule. They can be found here.
How does the new rule affect Highly Compensation Employees (HCEs)?
Under the FLSA, HCEs do not have to satisfy the extensive checklists of duties test in order to be exempt. It’s sufficient for them to pass a simplified test. The rationale is that since they are so highly compensated, it is reasonable to exempt them from overtime even if they do not fully satisfy the exhaustive duties test. Under the new overtime rule, the annual compensation threshold to be considered an HCE will increase from $100,000 to $107,432. If an employee meets the compensation requirement and meets a minimal duties test, the employer does not have to pay them overtime.
Aside from salary, can any other payments be counted toward the new $684 weekly salary threshold?
Yes. Employers can use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the salary test requirement. These payments must be made at least annually to be included.
For example, a salaried professional employee is paid a non-discretionary bonus of $5,000 annually. Up to $3,556.80 (10% of $35,568) can be added to his/her wages to help satisfy the $35,568 annual salary threshold. Under the old rule, these bonuses could not be counted.
If at year-end I discover an employee falls short of the annual threshold, can I make a catch-up payment?
Yes, if an employee does not earn enough in nondiscretionary bonuses and incentive payments, the employer has one pay period to make one “catch-up” payment at the end of the 52-week period (up to 10 percent of the salary threshold). This “catch-up’ payment can count towards the previous 52-week period only, and not the 52-week period in which it is paid; in other words, no “double-dipping.”
The state(s) I operate in have salary thresholds that are higher than the new federal overtime threshold. Does the new overtime rule affect me?
If your state’s salary threshold exceeds the new federal amount, then the new rule will not affect your employees, since you are already implementing a higher threshold. Continue to comply with the salary threshold of your state.
How do I prepare for the new overtime rule?
Employers should run analytics to determine which of their exempt employees currently fall between the old salary threshold of $455 and the new salary threshold of $684. If an employer has employees in this range for whom hours are not being tracked and overtime is not, then changes must be implemented: Either the employee must be reclassified as non-exempt and be paid overtime, or his/her salary must be increased to meet the new $684 threshold.
Now is the time to do your due diligence check for FLSA overtime compliance. Giving your employee the title “Manager” doesn’t mean you don’t have to pay overtime. When in doubt, we recommend consulting with your legal team to ensure that you are staying compliant with FLSA regulations.