More employees eligible for overtime pay beginning January 1, 2020

A scaled-back version of the change to the overtime salary threshold has been implemented by the Department of Labor. The Fair Labor Standards Act (FLSA) requires employees be paid a salary of at least the threshold amount and meet certain duties tests. If they are paid less or do not meet the tests, they must be paid 1 ½  times their regular hourly rate for hours worked in excess of 40 in a workweek.

The new rule will raise the salary threshold to $684 a week ($35,568 annualized) from $455 a week ($23,660 annualized).

Under the new rule, nondiscretionary bonuses and incentive payments (including commissions) paid on an annual or more frequent basis may be used to satisfy up to 10 percent of the standard salary level.

The new rule does not change the “duties tests” of the executive, administrative and professional exemptions—the so-called white-collar exemptions. Employees must perform certain duties and earn at least the salary threshold. Unlike the overtime rule that President Barack Obama's administration drafted in 2016, the new rule does not include automatic adjustments to the exempt salary threshold, but the DOL intends to update the thresholds more regularly—the last change was made in 2004.

So what does this mean for employers? As with any change of this nature, this is a good time to review your job descriptions to ensure that employees you are currently classifying as exempt from overtime objectively meet the duties tests as well as the new salary threshold. At the same time, consider the cost of raising employee salaries above the new threshold versus the cost of reclassifying employees as nonexempt and paying overtime. That may be an individual determination for certain positions or categories of employees.

Finally, when you communicate any changes to employees, be sure they know that being re-classified from exempt to non-exempt is not a demotion—it is a change required to comply with federal law.

Three months is not much time to put these changes into effect. We are available to review your job descriptions and any changes you are considering. Please contact any member of our employment team for assistance.