Starting in January 2020, 1.3 million more Americans will be eligible for overtime pay, thanks to the DOL new overtime rule. The Department of Labor announced its final rule on the new FLSA salary threshold on September 24, 2019.
What does this DOL overtime rule update mean for your small business? It may mean that you have to make some changes to your employees’ classification. Employees who were recently considered exempt may now be newly nonexempt.
So, what is the new exempt salary threshold? Read on to find out.
The new FLSA salary threshold
The Fair Labor Standards Act (FLSA) sets guidelines for employers to determine whether employees are exempt from overtime. Overtime is time and a half of what an employee earns for every hour worked over 40 in a workweek. The FLSA salary threshold is the minimum salary employers must pay employees for them to be exempt from overtime wages.
Beginning January 1, 2020, the salary threshold increases, making a number of previously exempt employees nonexempt. The new FLSA salary threshold is $35,568 annually or $684 per week.
The new law changes what qualifies as an exempt employee. But, keep in mind that this threshold is only one of three requirements employees must meet for FLSA exemption. Employees must also be paid on a salary basis and have executive, administrative, or professional job duties.
The DOL new overtime rule also changes the annual compensation requirement for highly compensated employees from $100,000 to $107,432 per year.
Another update is that employers can now use nondiscretionary bonus compensation and incentive payments (e.g., commissions) to pay as much as 10% of the new exempt salary threshold. This means that up to $3,556.80 in qualifying supplemental income can go toward the threshold.
What was the FLSA salary threshold before the 2020 update?
Do you have employees who are newly nonexempt? As a reminder, take a look at what the threshold was before the DOL overtime rule update.
Prior to 2020, the salary threshold for exemption was $23,660 per year, or $455 per week. This $23,660 threshold had been in effect since 2004.
What the DOL new overtime rule means for your business
So, does the DOL new overtime rule affect your small business?
If you have nonexempt employees, nothing will change. You will still pay your nonexempt employees their regular wages along with overtime pay for any overtime hours they work.
However, you may need to take action if you have exempt employees. And if you need to reclassify currently exempt employees, you will need to find ways to comply with the DOL new overtime rule.
Here’s what you can do to comply with the law.
Look at your exempt employees’ salaries
First, take a look at your records for each exempt employee. How much does your exempt employee earn per year? If they earn at least $35,568, you don’t have to do anything.
If you have previously exempt employees who earn below $35,568, you have three options:
- Increase salaries
- Pay overtime wages
- Limit overtime hours
Increase salaries
One option you have is to increase employee salaries above the new FLSA salary threshold of $35,568. Depending on what you currently pay your exempt employees, you might have to give pay raises.
If you also have nonexempt employees, you might want to consider giving them pay raises, too. That way, you can close any new wage gap in your business and avoid wage violations.
Pay overtime wages
You must begin paying your newly nonexempt employees overtime wages if they earn below $35,568 annually.
Again, overtime is time and one half the employee’s regular rate of pay for time worked beyond 40 hours in a workweek. Multiply the employee’s regular rate of 1.5 to get their overtime rate. Then, multiply that overtime rate by the number of hours over 40 worked.
You might want to convert your employees’ salaries into an hourly rate to make overtime pay calculations easier. However, you can calculate overtime for salary employees if you choose to continue paying salaries.
Limit overtime hours
Another option you have for dealing with the DOL overtime rule 2019 is to limit the number of overtime hours your newly nonexempt employees can work.
If your employees work many extra hours, the cost of overtime wages will quickly add up. Be upfront with your employees when implementing an overtime ban or decrease in the workplace.
Keep in mind that you cannot have employees work extra time for free. It is illegal to have your employees clock out and continue working.
Talking to newly nonexempt employees
If you have newly nonexempt employees due to the FLSA overtime rule update, you must talk to your employees. Here are the basic things you should talk to employees about to encourage a smooth transition.
1. Clarify that the changes are mandatory
Some employees may not like the change in status from exempt to nonexempt. When you talk to your employees about the changes, explain that you are required by law to follow the new FLSA salary threshold.
2. Promote the changes as positive
Again, some employees may be disgruntled about becoming nonexempt. Many employees view exemption from overtime as an elite or professional status. Employees who are newly nonexempt might think they are getting demoted.
Let employees know that exempt vs. nonexempt status is not a reflection of their importance.
Depending on your overtime policy, you can positively promote the changes. Let employees know that they can now earn extra income for any overtime hours worked.
3. Provide timekeeping training
This might be the first time your newly nonexempt employees are required to track the time they work. If that is the case, you should train your employees on how to use your timekeeping method (e.g., employee time clocks).
If you don’t have a timekeeping system in place, consider purchasing an online time and attendance solution for your business.
Let your employees know that they need to track all the time they work. In addition to regular tasks, your employees should track FLSA hours worked for things like taking a business call during lunch.
4. Explain flexibility changes
Exempt employees often enjoy more workplace flexibility than nonexempt employees. Tell your newly nonexempt employees how their new status affects their flexibility.
Often, exempt employees can create their work schedules around personal obligations. Now, employees must make sure they accurately track the time they actually work or don’t work.
5. Talk about job changes
Depending on your overtime policy, some jobs might change when the employee becomes nonexempt. You might have to reduce some employees’ tasks to limit the amount of overtime they will work. If you change or redistribute some tasks, make sure you tell the affected employees.
Also, make sure you clearly explain your overtime policy. Let employees know if they can work overtime to finish their work. If you will let employees work overtime, tell them if there is a procedure for asking to work additional hours, or if there is a cap on the amount of overtime allowed.
FLSA overtime rule update: Fast facts
Want the quick scoop on the DOL new overtime rule? We’ve got you covered:
- DOL new overtime rules 2019 begin on January 1, 2020
- Salary threshold increased from $23,660 per year ($455 per week) to $35,568 per year ($684 per week)
- Employers can now count nondiscretionary bonuses and commissions toward as much as 10% of the threshold
- Annual compensation requirement for highly compensated employees increased from $100,000 per year to $107,432 per year
Do you need an easy way to keep track of employee time? Try Patriot’s time and attendance software. Employees can easily clock-in and clock-out, and the hours are automatically sent to our payroll software. Try both for free!
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This article has been updated from its original publication date of November 23, 2016.
This is not intended as legal advice; for more information, please click here.