January 1 is around the corner. It’s time to figure out what the new federal overtime rule means to your business. Employees who make less than $35,568 are now eligible for overtime pay under a final rule issued September 24, 2019 by the U.S. Department of Labor (DOL). The new rate will take effect Jan. 1, 2020.
Employers will be required to pay most executive, administrative, and professional employees at least $684 per week ($35,568 per year). To be exempt from overtime under the federal Fair Labor Standards Act (FLSA), employees must be paid a salary of at least the threshold amount and meet certain duties tests. If they are paid less or do not meet the tests, they must be paid 1 1/2 times their regular hourly rate for hours worked in excess of 40 in a workweek. Except, in some states with already-higher minimum salaries for exemption (which include California and, for certain types of employees, New York), Iowa does not have a different provision for overtime, so this new federal rule fully applies.
Three Key Changes
- The salary threshold for administrative, executive, and professional employees is raised to $684/week, or $35,568/year. The current threshold is $455/week or $23,660/year.
- The Highly Compensated Employee threshold will be raised from $100,000 to $107,432.
- Employers may use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level
In anticipation of the rule change, employers should audit their current workforce and identify any current exempt employees whose classification will be impacted by the new salary threshold. Employers will have to choose whether to increase their salaries or treat the employees as non-exempt and pay them in compliance with the Fair Labor Standards Act.
Are you ready for this change?
- Have you prepared a list of potentially affected employees?
- Have you compared the cost of increasing their salaries to the new minimum with the cost of keeping their salaries where they are and paying for overtime?
- If you raise their salaries to the new minimum, have you considered whether you still have a “duties test” risk?
Meeting the salary cutoff is just one requirement for classifying workers as exempt. Employers should also take the time to review workers’ job duties to ensure they satisfy the applicable exemption’s criteria. The most commonly used exemptions are the administrative, executive and professional, collectively called white-collar exemptions.
Multiple Factors to Evaluate
- Executive exemption. The employee’s primary duty must be managing the enterprise or a department or subdivision of the enterprise. The employee must customarily and regularly direct the work of at least two employees and have the authority to hire or fire workers (or the employee’s suggestions and recommendations as to hiring, firing or changing the status of other employees must be given particular weight).
- Administrative exemption. The employee’s primary duty must be performing office or nonmanual work that is directly related to the management or general business operations of the employer or the employer’s customers. The employee’s primary duty also must include the exercise of discretion and independent judgment with respect to matters of significance.
- Professional exemption. The employee’s primary duty must be to perform work requiring advanced knowledge in a field of science or learning that is customarily acquired by prolonged, specialized, intellectual instruction and study.
Highly compensated employees whose total compensation is at least $100,000 a year are exempt from the FLSA’s overtime requirements if they meet a more “relaxed” duties test, as follows:
- The employee’s primary duty is office or nonmanual work.
- The employee “customarily and regularly” performs at least one of the bona fide exempt duties of an executive, administrative or professional employee, as described in the regulations.
The employer has the burden of demonstrating that the exemption applies. Businesses should start by creating accurate job descriptions that are tailored to each position and analyzed on an employee by employee basis. The content or duties of the job, not the job title, are the key to determining the proper classification under the FLSA. Then, employers should ensure that the job descriptions are kept up-to-date, continually monitoring jobs for any changes.
Training & Communication
Lastly, if employers decide to reclassify employees to nonexempt status, they will need to track affected workers’ work time and pay overtime premiums for all hours worked beyond 40 in a work week. Tracking their hours for the first time, as well as their managers, they will need training on new time-keeping procedures. Plans and procedures should also be developed to manage or limit overtime hours worked by newly nonexempt workers.
Employers will need to develop a communication strategy and make sure that reclassified employees know they are not being demoted; communicating that these changes are based on new government rules.
HR On-Call can help you navigate the complexities associated with the new federal overtime rule, please feel free to reach out for a consult. Thank you!
A little more about us: Susan Arnold, owner and lead HR Consultant at HR On-Call, LLC. Susan has 20+ years of HR experience and provides a HR presence to business organizations without the overhead expense of a full-time employee. Susan helps business owners improve employer/employee relationships and allows them to focus on their business while resting assured that they are in full compliance with state and federal law. Areas of expertise:
- Reduce Employer Risk and Liability
- Customized Employee Handbooks
- Performance Reviews
- Improve Employee/Employer Relationships
- Background Checks
- Personality Assessments
- Guaranteed EEO Compliance
- Employee Retention
- Recruitment / Hiring
- Employee Discipline/Discharge
Susan is passionate about her customers and listens to their needs. If you are interested in any of the details above or would like more information about her services, please contact Susan! If you have questions on how your specific policy should read or need help navigating a certain instance, contact HR On-Call, LLC.