The Department of Labor has released new overtime regulations detailed in the Fair Labor Standards Act (FLSA). These new regulations may affect you and your business. Here is a summary of the changes that are effective on January 1, 2020.
The new rule increases the salary threshold for white-collar exemptions from $23,660 ($455 per week or $1,972 per month) to $35,568 ($684 per week or $2,964 per month). The white-collar exemption is also known as the standard salary level or minimum salary to avoid paying overtime. The annual compensation level for highly compensated employees (HCE) increases from $100,000 to $107,432. All employees earning below $35,568 will be eligible for overtime effective January 1, 2020, assuming these employees meet the duties test.
The duties test has not changed. Employees who perform executive, administrative and professional duties are exempt from overtime requirements. So are certain computer professionals. Doctors, lawyers, and teachers aren’t subject to the salary tests as well. Please remember that job titles do not determine exempt status.
The new overtime rules allow employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices.
The implementation options that employers may choose from in order to comply with the new overtime rules are not dictated by the Department of Labor. Some options available to employers include the following:
- Increase salaries to at least $35,568 annually.
- Pay overtime above the employee’s set salary for weeks where hours worked exceed 40.
- Change employees to hourly rates and reduce or eliminate overtime hours by shifting work around or hiring more part-time workers.
- Adjust base pay and pay over time.
Exemption for Business Owners
This exemption remains unchanged under the new overtime rules. Under a special rule for business owners, an employee who owns at least a bona fide 20 percent interest in the enterprise in which employed, regardless of the type of business organization (e.g. C- Corporation, S-Corporation, or other), and who is actively engaged in its management, is considered a bona fide exempt executive.
For more information and future updates regarding the new Overtime Rules please contact your Hawkins Ash accountant or visit the U.S. Department of Labor Wage and Hour Division website for more information: