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New rules regarding overtime pay go into effect as of January 1, 2020. If you haven't already, now is the time to prepare for the changes and get your payroll systems in order.
The U.S. Department of Labor ("DOL") issued the new overtime rule, which could result in making 1.3 million more Americans eligible for overtime pay. The rule substantially amends the Fair Labor Standards Act ("FLSA") by updating minimum requirements on employers that had not been adjustedd since 2004.
The FLSA generally requires an employer to pay its employees at least the minimum wage for all hours worked, and overtime pay at a rate of 1.5 times the employee’s regular rate of pay for hours worked over 40 hours in a workweek. Certain employees are "exempt" from the overtime portion of the rule based on the type of work they perform and the amount they are paid.
Effective January 1st, the minimum salary threshold to qualify as an exempt employee will be raise from $23,660 annually (or $455 per week) to $35,568 annually (or $684 per week). Additionally, generally speaking, an employee must work in a "white collar" job to be exempt under the FLSA, e.g. an executive, administrative, professional, outside sales, or computer professional role. Finally, an employee must be paid a fixed salary that will not be reduced due to the quality or quantity of work they perform in order to be exempt.
Knowing the rules and implementing them in your business are separate things. Be careful of these common pitfalls:
It is a myth that salaried employees are automatically exempt. If a salaried employee is paid below the minimum salary requirement, or if the salaried employee is not a white collar worker, the employer must pay overtime.
Additionally, employers must pay heed to the number of hours worked in a workweek. The FLSA is very clear that the overtime rules apply on a week-by-week basis. It does not matter that a non-exempt employee worked 80 hours in a 2-week pay period: if one week was a 38-hour week and the other was a 42-hour week, the employee worked 2 hours of overtime in the second week and must be paid time and a half for those 2 hours.
Under the FLSA, overtime must be paid at 1.5 times an employee’s regular hourly rate of pay. However, calculating the "regular hourly rate of pay" must be calculated by dividing the employee’s total remuneration in any workweek by the total number of hours actually worked in that workweek. "Total remuneration" includes not just the employee's hourly wage (or salary equivalent), but any and all compensation paid by the employer, such as commissions, bonuses, tips, and stock incentive plans (but excluding PTO time, gifts, and other paid benefits).
We strongly encourage you to discuss your payroll policies with your Human Resources administrator, your attorney, your bookkeeper and/or your accountant and make sure that your business is up-to-date.