The Department of Labor issued a Final Rule on Tuesday changing the overtime rule under the Fair Labor Standards Act (FLSA).  CYB, the Highest Rated HR Company in Oklahoma, has been following along with these new developments.  The new rule goes into effect on January 1, 2020, and will require United States employers to reclassify over 1 million currently exempt workers to nonexempt status.  The new rule states that employees who make less than $35,568 a year are now eligible for overtime pay. 

The new rule raises the salary threshold from $455/week (or $23,660 annually) to $684/week.  Obama had proposed to double the old threshold, but a federal judge ruled that the Department of Labor exceeded its authority by raising the rate too high.  The new threshold of $684/week was approved on September 24, 2019.

What exactly is the Fair Labor Standards Act? 

The Fair Labor Standards Act is a federal law that was enacted in 1938.  It sets the federal minimum wage, requires overtime pay of time and a half for certain employees, has specific payroll recordkeeping requirements, and sets child labor standards.  Some things that the FLSA does not cover are vacation pay, holiday pay, severance pay, sick pay, and entitlements to rest or meal breaks.  These are all issues that employers can determine themselves for their organizations.  The FLSA is enforced by the Wage & Hour Division of the Department of Labor.  Employers can have suits filed against them by the DOL or by their employees through a private lawsuit.  One of the most common mistakes that employers make in attempting to comply with the FLSA is to misclassify employees (as either exempt or non-exempt).  “Exempt” means that the employees are “exempt” from the overtime requirements and thus not eligible for overtime.  Non-exempt means that employees are not exempt from overtime requirements and thus are legally required to be paid overtime (for time worked over 40 hours in a workweek).

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 employees are paid less than the threshold or do not meet the tests, they must be paid overtime.  Overtime is defined as 1 ½ times an employee’s regular hourly rate for any hours worked in excess of 40 hours in a standard pre-determined workweek.

Under the new rule, nondiscretionary bonuses and incentive payments that are paid on an annual (or monthly basis) can be included to satisfy up to 10% of the standard salary less.

In addition to raising the salary cutoff for exempt workers, the Department of Labor’s new rule also raises that threshold for “highly compensated employees” from $100,000 a year to $107,432 a year.

The new rule does not change the duties tests at all.  The new rule also does not call for automatic adjustments to the salary threshold.  However, the DOL stated that they intend to update the salary thresholds more regularly in the future.

What steps should you take as an employer?

  1. Employers should make of list of their exempt employees earning below the threshold, including all relevant payroll data.
  2. Employers should then consider which positions they can restructure, which employees that they should reclassify to nonexempt, and which employees they should give a salary increase to so that they are above the new threshold. Since the new rule does not go into effect until January 1st, employers can potentially work any new requirements into their end-of-the-year pay increases.  Employers should forecast and be prepared for changes in labor costs imposed by the new rule.
  3. Consult with HR Professionals or outside legal consultants. Before making these individual determinations for your workforce, consider talking to your legal counsel or to CYB, the Highest Rated HR Company in Oklahoma, to ensure that you are complying with the new rules.
  4. Employers also need to review these employees’ job descriptions to ensure that they satisfy the duties tests for each applicable exemption. Although the new rule is about the salary threshold, this is a perfect time for employers to make sure that they are following the rules for the duties tests as well.  CYB, the Highest Rated HR Company in Oklahoma, can help with this!  To summarize, some of the most common “white collar” exemptions are the executive exemption, the administrative exemption, and the professional exemption.  The executive exemption says that the employee’s primary duty must be managing the business or a department of the business.  The employee must “customarily and regularly” direct the work of at least two employees and have the authority to hire and fire workers (or at least be able they must give recommendations that are given “particular weight” in such decisions).  The administrative exemption states that the employee must primarily do office or non-manual work that is directly related to business operations.  The employee must also be able to exercise discretion and independent judgment in “matters of significance”.  Finally, to qualify for the professional exemption, the employee’s primary duty must be work requiring “advanced knowledge” in a field of science or specialized study.
  5. Employers should develop a plan to communicate any job status changes (such as exemption status) to employees. Employers should make sure that any reclassified employees know that they are not being demoted or punished.  Employers can just clearly state that these changes are due to new DOL rules.  Since re-classified employees will probably be required to clock in and out for the first time, employers should also be sure to train them on time-keeping procedures.  The Highest Rated HR Company in Oklahoma can help you with training and communication too!
  6. Lastly, employers should keep watching for further Department of Labor rulings this year. Acting Secretary of Labor, Patrick Pizzella, said to expect several more proposed and final rules before the year’s end.  CYB, the Highest Rated HR Company in Oklahoma, will keep you up to date on any new developments!

CYB Human Resources, the Highest Rated HR Company in Oklahoma, can ensure that your organization is prepared for the new rule to go into effect.  CYB is offering the opportunity to speak with an HR professional for a FREE 15-minute Overtime Assessment.  This assessment will include time to ask any questions that you may have.  Call 1-833-CYB-ASAP or email today to set up your Overtime Assessment!  Also, tell your friends about the Highest Rated HR Company in Oklahoma!