What Every Company Should Know About the New Overtime Rules

After years of regulatory wrangling, the U.S. Department of Labor’s (DOL) new overtime rules are set to go into effect on January 1, 2020. The new rules are designed to address employees who are currently exempt from mandatory overtime pay under the Fair Labor Standards Act. Implementation could result in more than 1 million exempt employees receiving overtime pay from 2020.

This is something that has been a long time coming. The DOL attempted to implement similar rules under the Obama administration, but those rules were put on hold when President Trump took office in 2017. Nearly two years later, the new rules are finally ready to go.

Is your company ready? If not, keep reading. Below is a discussion of some of the most important things you need to know about the new overtime rules.

Salary Basis Requirement

In a document highlighting how the new rules affect employers and their salaried employees, the DOL explains two requirements that have to be met in order for an employee to be considered exempt from overtime pay moving forward. The first is the salary basis requirement. This requirement states, in a nutshell, that employees deemed exempt must make a minimum of $684 per week in fixed salary. The rule also states that:

  • impermissible deductions affect exemption status; permissible deductions do not
  • an exempt employee’s pay cannot increase or decrease due to quality or quantity of work
  • the salary basis requirement does not apply to doctors, attorneys, and teachers.

Most of the people affected by this particular requirement are likely to be entry-level managers in retail, food service, etc. However, there is a second requirement that must be satisfied as well.

Duties Requirement

In addition to the salary basis requirement, employers must look at the duties performed by salaried employees to determine if they truly qualify as exempt. Unfortunately, this particular requirement is not as easily defined. It requires that the duties performed by an exempt employee be executive, administrative, or professional level duties.

It is possible to meet the salary requirement but fail the duties requirement, and vice versa. The interesting thing about the duties requirement is that it is open to interpretation. What one company requires from administrative duties may not be considered the same kind of work at another company.

Prepare Now

BenefitMall, a Dallas company that provides payroll and benefits administration services nationwide, encourages employers to start getting ready for the new overtime rule now. The first step is to go through payroll records to determine which employees are currently exempt. Then determine how many of them will meet the salary requirement as of January 1, 2020.

For the record, $684 per week works out to $35,568 annually. Any employees earning less than that automatically fail the salary requirement test. They must be paid overtime. Any who meet the salary requirement can then be evaluated based on their duties.

It is advised that management and HR begin working on written policies explaining how duties are classified to avoid any questions about executive, administrative, and professional duties. Clearly classifying specific duties makes it easier to determine, and defend, the exempt status of salaried employees.

Finally, it is understood that some companies will reduce available overtime in order to control the additional costs the new rules are anticipated to create. As such, existing overtime policies should be examined and adjusted. Everything should be put in writing to avoid any confusion.

The new overtime rules are now just weeks away. If your company has not begun to prepare, now is the time to start.