Update on DOL Overtime Regulations: New FLSA Overtime Rule Just Finalized and Effective January 2020

The wait and uncertainty regarding potential new overtime regulations are over. On September 24, 2019, the Department of Labor (DOL) announced a final rule that will impact more than one million workers when it takes effect in January 2020.

A Closer Look at Regulatory Activity Since 2016

As you recall, the DOL issued sweeping new overtime rules in mid-May 2016 under the Obama administration. The highly debated changes would have increased the minimum salary threshold for overtime pay exemption from $455/week ($23,660 annually) to $913/week ($47,476 annually). At the time, the DOL estimated that nearly 4.2 million workers who were currently exempt would become eligible for overtime under the revised threshold.

The new overtime rule was scheduled to take effect December 1, 2016, but, as anticipated, it was challenged in the courts. Based on arguments by various states and business groups, a federal judge in Texas issued a final-hour preliminary injunction on November 22, 2016, blocking the DOL from implementing the rule.

What the New Rule Covers

Fast forward to fall 2019. After considering more than 200,000 public comments, the DOL has moved forward with a final rule. Under the new guidelines, the minimum salary requirement will increase to $684/week ($35,568 annually) – considerably less than the 2016 rule. While the earlier changes would have affected more than 4 million workers, the 2019 rule will make 1.3 million workers newly eligible for overtime pay. As of January 1, with very few exceptions, employers will have to pay time-and-a-half to workers making less than this amount for any hours over 40 per week.

Something that won’t change under the new rule are the white-collar duties tests for executive, administrative and professional employees. In addition to the salary requirement, certain factors must be met for an employee to qualify for exempt status under these federal tests. For example, to qualify for an administrative exemption, the employee must perform non-manual work, manage “back office” general business operations and have decision-making authority on significant matters.

Remember: Exempt status is determined through salary and the DOL job duties tests. To properly classify employees, you must look beyond job title or payment and consider the actual work performed.

Proactive Measures for Responsible Employers

Under the updated salary thresholds with the overtime rule, you will have two primary options with affected employees:

1. Increase employee salaries to avoid having to calculate and pay overtime
2. Reclassify employees as nonexempt or “hourly” and pay them one-and-a-half times the regular hourly rate for any hours over 40 in a work week

Obviously, this will require a careful review of your salaried employees’ hours and your payroll budget. (You’ll also need to verify that potentially affected employees meet the job duties tests for exemption; otherwise, they won’t qualify, regardless of salary.) While in some cases it may be best to boost salaries that are close to the threshold to avoid overtime issues altogether, in other cases you may want to reclassify employees as hourly and closely track their hours to control overtime costs. Once you’ve made these reclassification decisions, you’ll need to properly document all payroll status changes.

It’s also important to put together a communication plan to inform management and employees about the new rules and their impact on the workplace. Finally, timekeeping training should be conducted for employees going from salary to hourly – and for supervisors who will have the responsibility of approving overtime and timesheets.

At this time, be aware that the final rule is pending publication by the Federal Register. Only this version will become the official final rule, which we’ll continue to monitor in case there are any additional modifications.

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