New Year, New Overtime Rule
By Judy C. Benson
On September 24, 2019, the U.S. Department of Labor released a final rule on overtime compensation, updating overtime rules that had not been updated since 2004. The new rules will take effect January 1, 2020 and are expected to prompt employers to reclassify many of their employees from exempt to non-exempt status and issue pay increases for those above the new threshold amount. Employers also may want to revisit the “white collar” exemptions as the duties test is slightly different (for additional information click here).
Employers are required by the Fair Labor Standards Act (FLSA) to pay overtime for hours worked over 40 each week. The FLSA allows for exemptions for certain employees in various professions provided they meet the tests outlined by the Department of Labor Wage and Hour Division (for additional information click here). The Obama administration had approached the subject of increasing the overtime eligibility salary requirements with higher threshold recommendations, which included an automatic adjustment every three years. The final rule issued in September did not include as steep an increase as the previous administration had suggested. The final rule, in part, raises the salary threshold for exempt employees to $35,568 per year from its current level of $23,660 per year, permits employers to use additional pay issued as part of that minimum requirement up to 10% (as has previously been the case for only the highly compensated employees), and also increases the yearly threshold for highly compensated employees’ exemption status from $100,000 to $107,432.
It is important for employers to consider the exempt status of their current employees prior to January 1, 2020, taking into consideration the existing duties tests, examining costs involved with changing an employee’s status versus raising wages, and keeping apprised of state regulations in regard to the FLSA ruling.
Please contact your trusted advisor with any questions regarding the new overtime regulations and how they may apply to your company.
Judy C. Benson Senior Accountant CAS