The U.S. DOL has released its final rule amending the overtime provisions of the FLSA. This new final rule supersedes a similar final rule published in May of 2016, which had been invalidated in August of 2017 by a federal court in Texas. The latest final rule goes into effect on January 1st, 2020. Here are a few highlights of the new rule:

Increased salary threshold. The FLSA requires employees to be paid time-and-a-half for hours worked over 40 in a week unless an employee meets certain criteria for exemption. The current minimum salary that a worker has to be paid to be exempt from overtime is $455 per week or $23,660 per year. The new rule raises the minimum salary to approximately $684 a week or $35,568 per year.

Increased highly compensated employee salary threshold. The total annual compensation for exempt, highly compensated employees climbs from $100,000 to approximately $107,148.

No automatic adjustments to the salary threshold. Unlike the provisions of the 2016 rule, the new rule does not establish a formula to regularly increase the salary thresholds for overtime exemption and highly compensated employees.

Discretionary bonuses may be included in the salary threshold. The new rule allows for up to 10% of the salary to be covered by discretionary bonuses, incentive payments, and commissions if the employer pays them at least annually.

No change to the duties tests. The DOL’s final rule did not include changes to the executive, administrative, professional, computer, or outside sales duties tests.

What Employers Should Be Doing Now

Employers must comply with the new rules by January 1, 2020. Employers should be evaluating and preparing for this new reality now by doing the following:

  • Determine which current exempt employees will lose their exempt status based on their current salaries and either increase their salaries to meet the new minimum or reclassify them as non-exempt. This may require evaluating and revising job descriptions, job schedules, staffing approaches, and payroll policies.
  • For employees converted to non-exempt status, employers will need to develop a new compensation plan, include rate or method of pay, taking into account the possibility of overtime pay.
  • Communicate the changes and the reasons for the changes to employees.
  • Train formerly exempt employees regarding time-reporting procedures, compliance with overtime rules, and adherence to rest and meal break requirements.
  • Train supervisors on how to manage, counsel, coach, and discipline newly non-exempt employees to comply with timekeeping and record-keeping requirements.
  • If salaries are increased to comply with the new threshold, employers may need to evaluate how these changes impact the organization’s overall compensation structure and pay practices to address any resulting pay compression issues.
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