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It’s official: On Tuesday, September 24th, the US Department of Labor announced a new overtime threshold, classifying more than 1 million white-collar workers as eligible for overtime compensation.
Starting January 1st, 2020, all employees making $35,568 a year or less must be paid time and a half for all hours worked over the 40 hour/week line.
Under the Fair Labor Standards Act (FLSA), there are two qualifications that an employee must meet to be legally exempt from overtime compensation:
- Earn $35,568 a year or more AND
- Perform certain job duty qualifications.
If an employee doesn’t meet both criteria, they must be paid time and a half for all hours worked in excess of 40 in a workweek.
The minimum wage threshold for highly compensated individuals has also gone up. As of now, all highly compensated employees earning $100,000 a year or less qualify for overtime pay. In January, this threshold will rise to $107,432 a year.
It’s been 15 years since a change in the threshold, though there have been many rejected proposals – including President Obama’s 2016 proposal to double the exemption minimum.
Now that the long-awaited changes have officially been made, employers need to assess their exempt and hourly workers and start making decisions.
Employers, consider the following in your decision making:
The proposal allows employers to use non-discretionary bonuses and commission to satisfy up to ten percent of the standard salary level.
The DOL will permit employers to use non-discretionary bonuses and incentive payments to satisfy up to 10 percent of the standard salary level. (That’s up to $3,556.80 per year.) These payments must be made on an annual or more frequent basis to count towards the portion of the standard salary level test.
Reclassifying employees can be costly.
If you decide that reclassifying an employee is a better financial decision than giving them a raise, be sure to consider the administrative costs you may face, having to calculate overtime pay and keep track of workers’ hours. Know that reclassifying will also be an adjustment for many workers, who might not be used to logging hours or being paid on an hourly basis. If you need to evaluate a timekeeping solution, you can contact us at success@dominionpayroll.com for more information and a quote.
Some employees may view reclassification as a downgrade.
Though reclassification would certainly not be a downgrade, employees may be inclined to think so, especially if surrounding employees earn a raise and they don’t. Be prepared to tackle this issue, assuring newly-reclassified workers that this is not a demotion and that they will now be compensated for overtime pay.
Taking time to assess decisions on an employee-to-employee basis is key, considering the best outcome for both your company and your employee. As an employer, you’ll be responsible for making sure each employee is fairly classified and you should always be able to prove why an employee is legally exempt from overtime.
More details and information on this ruling can be found on the DOL website.