FLSA: New overtime rules coming in January 2020 for employers and employees

It is hard to believe that the on-again, off-again subject of overtime rules is back in the news. But here we are folks – and it’s definitely back on.

On September 24, the Department of Labor (DOL) issued a final rule that employees who make less than $35,568 are now eligible for overtime pay. The new rate will take effect Jan. 1, 2020.

The new rule will raise the salary threshold to $684 a week ($35,568 annualized) from $455 a week ($23,660 annualized).

If you recall back in 2016, employers and employees everywhere prepared for an unprecedented change that would more than 1 million exempt employees in line for overtime pay, where they were not eligible previously. The Obama-era rule would have doubled the threshold to $913 a week, or $47,476 a year.

Companies everywhere scrambled to prepare – they changed payrates, cut hours, laid off employees, and increased and decreased pay – only to have the ruling not go through at the last minute. And when I say last minute, let me remind you that on November 22, 2016, a judge blocked the ruling that was to go into effect on December 1, 2016! It was a nightmare for so many.

We now have a definitive ruling. (Whether it is good or bad news depends on which side of the situation you’re on.)

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 of $35,568 and meet certain duties tests. If they are paid less or do not meet the tests, they must be paid 1-1/2 times their regular hourly rate for hours worked in excess of 40 in a workweek.

According to the National Association of Human Resources, the new overtime rule will result in the reclassification by employers of more than a million currently exempt workers as nonexempt and an increase in pay for others above the new threshold. The proposal does not call for automatic adjustments to the salary threshold, does not create different salary levels based on region of the country and does not make any changes to the duty’s tests.

SHRM also reminded employers and employees that meeting the salary threshold doesn't automatically make an employee exempt from overtime pay. The employee's job duties also must primarily involve executive, administrative or professional duties as defined by the regulations.

What does this mean for employees? 

• Should you meet the duties test and qualify as an exempt employee, and earn $35,568 per year or less, you now must be paid overtime for any hours worked over 40 in a given work week.
• Your employer may choose to increase your salary to the minimum and is allowed to do so; meaning of course that if this happens, you will not be eligible for overtime pay.
• Employees in Pennsylvania who believe they do not meet the duties tests and are not paid overtime for hours worked over 40 hours in a week can lodge a complaint by calling 1-866-4-USWAGE.

What does this mean for employers?

• Regardless of the ruling, you are required by federal law to assure that your employees meet the current duties test in order to be exempt from overtime, (time-and-a-half pay) for all time worked over 40 hours in a work week.
• Prepare for the effects of the change by working with your financial team or accountants to understand how it might affect your business planning and bottom line.
• It is also federal law that you have the proper posters and record keeping in place to comply with the law
• Nondiscretionary bonuses and incentive payments, including commissions, paid annually or more frequently may be used to satisfy up to 10 percent of the standard salary level.

If you are going to take risks in your business, this is not one of them to take! It is a federal ruling and the consequences for not following the rules are not a joke. According to the DOL website, in addition to the rights and remedies available to persons through private suits for violations of the Act, there are a variety of steps that the DOL can take:

• They can request the payment of any back wages due to employees.
• Willful violators may be prosecuted criminally and fined up to $10,000.
• A second conviction may result in imprisonment.
• Employers who willfully or repeatedly violate the minimum wage or overtime pay requirements are subject to civil money penalties
• The DOL may also bring suit for back pay and an equal amount in liquidated damages
• The Act also prohibits the shipment of goods in interstate commerce that were produced in violation of the act.

It’s said that change is the only constant in life. That’s certainly true for HR regulations. What doesn’t change, however, is the need to comply with them. The clock is officially ticking on this new overtime threshold.