What To Know About the Updated Federal Overtime Rule

On September 24th, 2019, the US Department of Labor set into law a new overtime rule. The new rule raises the salary level for employees who are considered “exempt,” or unable to earn overtime pay. Consequently, over a million Americans are now eligible to earn overtime, which means employers need to consider how the new rule will affect their business. 

The new overtime rule increases the salary threshold from $455 to $684 per week. Employers have until January 1st, 2020 before the new salary threshold will be enforced. 

A Quick Refresher on Overtime Pay and Exempt Employees

The Fair Labor Standards Act states that certain salaried employees, such as managers and those with advanced knowledge, “in a field of science or learning,” are exempt from being able to earn overtime pay if they make more than specific salary thresholds.

These new thresholds as of January 1st, 2020 are:

  • More than $684 per week, or

  • Over $35,568 a year

To clarify, the updated federal overtime rule requires employers to pay overtime to salaried employees unless they make more than $684 per week or over $35,568 a year. This new rule hits a sort of middle ground between what was previously on the books and the last proposed increase in 2016. The proposed increase would have nearly doubled the previous rule, and since the proposal, employers weren’t sure what to prepare for, until March of this year. 

Monitor Employee Hours Easily and Seamlessly Integrate Them Into Payroll

How businesses should prepare for the new overtime rule

Employers have until January 1st, 2020 to prepare for the new rule. But it’s important to remember that salary is not the only factor in determining overtime eligibility; there’s also a duties test. Duties test say that in order for a worker to not qualify for the new overtime pay, their job responsibilities must fit inside one of the following categories:

  • Administrative duties, like HR employees and PR representatives

  • Professional, like lawyers, dentists, accountants, or even “creative professionals,’ like musicians and actors

  • Executives, like managers and some supervisors

  • Outside sales, such as enterprise salespeople

Remember: the test is focused on the employee’s duties, not their job title. If you have any second guessings about whether an employee qualifies for an exemption, consult this sheet from the DOL or consult with your lawyer.

But for a lot of employers, the new overtime rule will mean more employees will qualify for overtime in January. Here’s a few things you can do to prepare for the new rule:

  1. Review your employee’s salary levels and job duties to make sure you’re already complying with the current federal overtime rule. Are there any current employees who will be newly eligible under the new federal rule?

  2. If you do have employees who will be newly eligible, you have a couple of considerations:

  • Reschedule employees so they don’t work extra hours and hence incur overtime

  • Cut costs in other areas and budget for more overtime hours

  • Hire more workers to spread the work around, so eligible employees will put in less overtime hours

  • Increase the pay of newly eligible employees; if they often work overtime, upping their salary may be more cost effective.

Subscribe to our blog to keep up on the latest HR and Payroll news!