New federal overtime exemption regulations have finally been introduced for non-exempt workers after years of wrangling over the issue.
Under the new rule, employers will be required to pay overtime to certain salaried workers who make less than to $684 per week – or $35,568 per year – up from the current threshold of $455, or $23,660 in annual salary.
The new regulations are a midway point from Obama administration rules that would have seen the salary cap increased to $47,476, a move that was blocked by a court after protests from the employer community in December 2016.
Because the Trump administration took over after that, it decided not to pursue an appeal of the judge’s orders and instead started working on replacement regulations that appeased the employer community, which had protested the doubling of the cap as too costly for businesses.
The Fair Labor Standards Act requires that most employees in the United States be paid at least the federal minimum wage for all hours worked, and overtime pay at not less than time and one-half the regular rate for all hours worked over 40 in a workweek. However, the law includes exemptions for certain workers, as long as they satisfy a certain salary threshold.
Under the final rule issued by the Department of Labor, executive, administrative, professional, computer or outside sales employees who make more than $684 a week are exempt from the FLSA’s minimum wage and overtime pay requirements. The new regulations also allow employers to count a portion of certain bonuses (and commissions) towards meeting the salary level.
The new rule takes effect Jan. 1, 2020.
Who is exempt?
Here are the tests that must be satisfied to categorize workers as exempt if they make more than the new threshold (remember, merely giving someone a job title without these responsibilities does not make them exempt):
- Managing the enterprise, or managing a department or subdivision of the enterprise;
- Directing the work of at least two or more other full-time employees or their equivalent; and
- Authority to hire or fire other employees, or have significant input in hiring, firing, and promotions.
- Office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
- Exercise of discretion and independent judgment with respect to matters of significance.
- Work requiring advanced knowledge, that is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment;
- The advanced knowledge must be in a field of science or learning; and
- The advanced knowledge must be acquired by a prolonged course of specialized intellectual instruction.
This includes computer systems analysts, computer programmers, software engineers, and other similarly skilled workers in the computer field. To be categorized as exempt if making more than the new threshold, workers must be involved in:
- Application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
- Design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
- Design, documentation, testing, creation or modification of computer programs related to machine operating systems; or
- A combination of the above.
Outside sales employees
- Making sales or obtaining orders or contracts; and
- Engaged away from the employer’s place(s) of business.
Highly compensated employees
The overtime threshold for “highly compensated” employees is also rising – to $107,432 per year, from the current $100,000. This means that employees who are not considered exempt as in the above occupations, and who earn less $107,432 starting next year, will be eligible for overtime if they work more than 40 hours a week.
Overtime regulation compliance
Here is a checklist of action items that you should address immediately:
- Check whether your salaried employees satisfy the duties and salaries components of the FLSA white-collar exemptions (or your state law).
- Identify all of the positions that will require reclassification under the new rule, and decide whether it is worth it to increase someone’s salary.
- Analyze the financial impact of reclassifying employees as nonexempt.
- Consider reassigning certain tasks to reduce the effects of the rule.
- Make plans to conduct reviews regularly – like every three years for federal law compliance, or more frequently in California ahead of minimum wage changes.