New Department of Labor "overtime rule" - What employers need to know

The long expected changes by the Department of Labor (DOL) with regard to the “overtime rule” will take effect on January 1, 2020. Nationwide, this employer regulation is expected to result in an additional 1.3 million workers being entitled to overtime pay.

The final rule applies to all employers, including private, non-profit, or government/municipal.

What is the overtime rule?

The overtime rule determines which nonexempt employees are eligible for overtime pay if they work more than 40 hours per week. (Exempt employees are not included in the overtime rule.)

What are notable changes with the new overtime rule?

  • The salary threshold will increase substantially from $455 per week to $684 per week ($35,568 annually) for what are commonly called white-collar overtime exemptions. In other words, if employees make $35,568 or less a year and work overtime, they are entitled to overtime pay if they work more than 40 hours in any one pay week.
  • The rule also increases the threshold for highly compensated employees from $100,000 to $107,432 per year ($684 must be paid weekly as a salary or on a fee basis).
  • “Job duties” test remains the same for salaried employees, including those in executive, administrative, professional, outside sales, and computer employee positions.
  • A beneficial change for employers is that for the first time, employers can now use non-discretionary bonuses or incentive payments, including commissions, to satisfy up to 10 percent of the salary requirement.  Note that these payments are non-discretionary, however if an employee does not earn enough in a given year to retain their exempt status, the DOL permits a catch-up payment so long as it is made within one pay period of the end of the pay year.

What can employers do to ensure compliance with the overtime rule?

A. Employers should assess the impact the new regulations will have on your business.

  1. Review overtime history at your company to determine the possible financial impact.
  2. Identify employees who will likely be affected by this change.
  3. Determine if it will be beneficial to raise employees’ salaries over the threshold eligible for overtime pay ($35,568 for a full-time worker).
  4. Determine if it will be possible to change employees who are already above this threshold to an exempt status. To do so, you will need to examine the job duties test.
  5. Communicate the new rules to employees and update your employee handbook.

B. Employers should consider investing in technology to better track overtime by employees.

  1. Look into technology such as apps or online entering of employee hours.
  2. Work with your payroll vendors to ensure timekeeping is accurate and automated to avoid errors.
  3. Consider utilizing timekeeping processes across multiple devices for employees.

C. Employers should consider structural changes. 

  1. Consider limiting employees’ work hours to 40 hours per week.
  2. Where appropriate, tie pay to incentive payments.

Your goal as an employer is to ensure regulatory compliance of the overtime rule and avoid costly penalties from mistakes or noncompliance. An employment or business law attorney at Murphy Desmond S.C. can assist you with this process.

Call (608) 257-7181 or email the firm at email@murphydesmond.com for assistance with the overtime rule and any other employment law matter.

Published November 5, 2019

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