DOL Final Overtime Rule – What Employers Need to Know

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What?

Final Fair Labor Standards Act’s (FLSA) overtime regulations were released updating the earnings thresholds necessary for executive, administrative and professional employees (EAPs) to be exempt from FLSA’s minimum wage and overtime pay requirements.

What are the overtime regulations? 

The FLSA requires employers to pay minimum wage ($7.25) and overtime (time and a half on more than 40 hours worked in a workweek) to employees unless an employee meets the few, narrowly construed exemptions from this requirement.

Salary level alone does not make an employee exempt, rather to qualify for the executive, administrative or professional employee exemption the employee must also perform specific duties, i.e. pass the duties test.

Current Salary Level: $455 per week ($23,660 per year for a full-year worker)

New Salary Level $684 per week (equivalent to $35,568 per year for a full-year worker).

(The FLSA regulations also contain a special rule for “highly compensated” employees and the new regulations will increase the total annual compensation requirement for these employees from $100,000 per year to $107,432 per year.)

When?

Assuming there is no lawsuit to block these new rules, the final rule is effective January 1, 2020.

How should employers prepare?
  1. Evaluate potentially impacted employees – pull data for exempt workers earning $35,568 per year or less.
  2. Review job descriptions & ensure employees are classified correctly. Be sure to keep in mind, meeting the salary cutoff is just one requirement for classifying workers as exempt.
  3. Consider what positions you might restructure.
  4. Decide when, practically speaking, you will implement changes – the new salary level exemption under the regulations will increase all at once.

If you currently have exempt employees making less than $684/week you will need to decide whether you:

  • Keep employees at their current salary level and closely monitor overtime
  • Convert employees to hourly & reclassify to nonexempt*
  • Increase salaries

*A communication strategy to reclassified employees should be developed to make sure these employees don’t feel they are being demoted but rather the changes are based on a new government rule.

Example:

FLSA: Memo to Exempt Employees Regarding the FLSA Changes

Dear [Employee Name]

Due to both your job duties and the amount of salary you are paid, you are currently exempt from overtime under the federal Fair Labor Standards Act (FLSA). However, in September of 2019, these regulations were amended and the salary requirement to remain exempt significantly increases effective January 1, 2020. 

Therefore, to comply with the new government rules, your status is changing to nonexempt (overtime eligible) effective {date}. This means you will now be paid an hourly rate of [$] and eligible to be paid overtime any week when more than 40 hours is worked.  Your job duties do not change as a result of your nonexempt classification.  Your manager will meet with you to review the time tracking requirements and the process for obtaining approval for overtime hours.

If you have any questions regarding the impact of this FLSA overtime rule, or your change to nonexempt status, please contact [name and contact information]. 

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