January 1st ushered in a brand new decade, but that’s not all that changed when the ball dropped. Many of us were up way past our bedtime to ring in the new year. You might even say we were putting in a little overtime for the holiday. Appropriately enough, the second that clock struck midnight, new overtime rules also went into effect. These new overtime rules made over one million employees eligible for overtime pay. So, what do employers need to know?
What are the New Overtime Rules?
As of January 1, 2020, the US Department of Labor’s new overtime rules increased the FLSA minimum salary threshold to be considered an exempt employee under the Administrative, Professional, and Executive Exemptions from $23,660 to $35,568 nationwide. That’s a pretty sizable jump and the first time the threshold has been updated in 15 years. It also likely means some of your employees under this salary threshold may be affected. With this new law, an estimated 1.3 million employees across the country just became eligible for overtime. So, who’s still exempt from overtime pay?
Just in case you need a little refresher: employees with “non-exempt” status are eligible for overtime pay and must also be paid minimum wage. In order for an employee to be “exempt” from overtime pay and the minimum wage requirements the employee must meet all three of the following tests:
Salary-Level Test: Employees must earn a weekly salary that meets the minimum requirements. This has increased from $455 per week to $684 per week (i.e. $35,568 per year) effective January 1, 2020.
Salary-Basis Test: With a few limited exceptions, the employer must pay the employee a full salary in any week regardless of the quality or quantity of the work performed. This requirement has not changed.
Duties Test: The employee’s primary job duties must meet requirements set forth by the Fair Labor Standards Act (FLSA) in order to be considered exempt. There has been no change to the duties test
Exempt employees must meet all three of the above tests to be exempt. In layman’s terms, if you have employees who are not eligible for overtime and they make less than $684 per week, after January 1, 2020 they will be considered non-exempt and eligible for overtime and minimum wage. This means the employees would be entitled to overtime when they work over 40 hours in a workweek. Employees who earn over the new salary threshold AND also meet the other two tests (salary-basis and duties test) may continue to be classified as exempt
Changes for Highly Compensated Employees
The Department of Labor also altered the annual compensation requirement for highly compensated employees. As of midnight, the compensation threshold changed from $100,000/year to $107,432/year. In addition to a minimum salary of $107,432, the FLSA categorizes employees as highly compensated if and only if their work is office-related/non-manual labor and are regularly responsible for administrative or executive tasks.
How to Handle the New Overtime Rules
What do you as an employer or HR professional need to do to handle the new overtime exemption rules? To start, confirm all of your exempt employees’ salaries. If your exempt employees’ salaries are below the new threshold of $35,568 you have two options. You may raise their salaries above the new threshold. However, this may still not solve your issues. You must also confirm that the employee also qualifies for one of the exemptions under the duties test. Your second option is to reclassify the employees under the threshold as non-exempt and pay them overtime when they work over 40 hours in a work week.
However you decide to handle it, inform your affected employees as promptly as possible. There’s a good chance they’ve been keeping up with the new overtime rules.
Review Timekeeping Processes
If your organization has a sudden shift from exempt to nonexempt employees thanks to these new overtime rules, accurate timekeeping has never been more important. Non-exempt employees must have a method to record all work hours. Additionally, your organization will need to properly account for and pay overtime to impacted employees. CTR offers a wide range of services, but time tracking is in our roots. Explore our time and attendance solutions to help your business stay compliant with the new overtime regulations.