The New Overtime Rule Explained

NOV 1, 2019 | Dr. Gia Wiggins, SPHR, SHRM-SCP - President, Morale Resources

By now, you’ve probably heard about the Overtime Rule issued by the Department of Labor. In the last month, I’ve received multiple calls from business owners asking if they should merely increase their salaried employees' pay to the new threshold. Before you take that step let's look at the rule. 

What is the Overtime Rule?

Effective January 1, 2020, the U.S. Department of Labor announced a final rule to make 1.3 million American workers newly eligible for overtime pay by updating the pay thresholds required for exempt executive, administrative and professional employees from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay requirements. It also allows employers to count a portion of certain bonuses/commissions towards meeting the salary level.

The final rule

·       Raises the "standard salary level” from the currently enforced level of $455 per week to $684 per week (equivalent to $35,568 per year for a full-year worker);

·       Raises the total annual compensation requirement for "highly compensated employees” from the currently enforced level of $100,000 per year to $107,432 per year;

·       Allows employers to use non-discretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices; and

·       Revises the special salary levels for workers in U.S. territories and the motion picture industry.

What do I need to know?

·      If you have an exempt (salaried) employee that is paid under $684 per week, you may be in violation as of January 1st.

·      All employees that you would like to classify as "salaried”, must pass an exemption "duties” test found on https://www.dol.gov/whd/overtime/fs17a_overview.pdf (Fact Sheet #17A: Exemption for Executive, Administrative, Professional, Computer & Outside Sales Employees Under the Fair Labor Standards Act ). If the duties of the employee do not pass this "duties” test, the employee may be eligible for overtime.

 

Considerations

Once you have assessed the exempt classification of your employees, the quick response of increasing wages may be administered along with a few other considerations:

1.     Maybe the employees should be classified as hourly. If the individual employee’s responsibilities don’t pass the "duties” test, you should reclassify the employee as hourly, or restructure their responsibilities so it passes the "duties” test.

2.     Calculate hourly wages fairly so the employee doesn't lose money as a result of the reclassification. If the employee worked 40 hours a week as a salaried person, ensure that the salary isn't lowered where the employee must work 45 hours a week (5 hours overtime) to receive the same amount of pay. While this is not illegal, it will negatively impact your employee's engagement with the job and company. Be fair.

3.     Consider all compensation as you raise the wage.Keep in mind that you can provide up to 10% of the salary in non-discretionary bonuses and incentive payments including commission to bring up the salary rate above the threshold.

4.     Conduct a compensation review to identify areas of possible non-compliance. Run a report of all employees to ensure you are meeting the salary thresholds and review job descriptions to ensure the "duties” test is objectively passed. Many employers have found that the new rule affects more employees than originally thought.

The good news is….you have until January 1, 2020, to incorporate all changes to your existing compensation program. Be sure to communicate any changes and the reason for the reclassification to your employees. Always document the changes formally via letter or memo that includes the effective date. 

If you need assistance, email me at giawiggins@moraleresource.com for an assessment.

Dr. Gia Wiggins Ph.D., SPHR, SHRM-SCP
President
Morale Resource LLC


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