Department of Labor Announces New Overtime Rule

The Department of Labor has announced a significant change to the overtime rule, and it is significant enough to play a large role in the way businesses like yours pay employees. We’re working to help you prep for these significant changes. What can you expect?

In 2020, 1.3 million Americans will see significant changes to when overtime applies to their earnings. All business owners and human resource managers need to be aware of and ready for these changes. It’s also important for you to prepare for how they will impact the day-to-day operations of the company.

What Is the Updated Overtime Rule?

The U.S. Department of Labor states that the new rule will make more people qualify to receive overtime pay than previously. It is an update to the FLSA, or Fair Labor Standards Act – adjusting when executive, professional, and administrative employees are exempt from receiving overtime pay and minimum wage.

The details of the rule include the following:

  • The standard level of salary has been updated. Now, to be exempt from overtime pay, an individual must earn at least $684 a week. That is the same as earning $35,568 annually. This is an update from the previous rule of $455 per week or $23,660 annually.
  • Those considered highly compensated employees now must earn at least $107,432 per year, which is up from the previously set $100,000 per year.
  • Nondiscretionary bonuses and incentive payments can be used by employers as a component to satisfy an amount of up to 10 percent of the employee’s standard level of salary if paid at least annually. This includes commission payments.

These changes go in place on January 1, 2020, and you’re company needs to be ready to implement them prior to this date.  Other changes apply for those within the motion picture industry as well as workers in other U.S. territories.

How Can Companies Prepare for the Department of Labor Changes?

Human resource teams and business owners need to update practices to adjust for these updated overtime rule requirements. At Employers Advantage, we’re working to support our clients already making these updates. Here are a few specific steps you should take to reach this goal.

#1: Ensure Accurate Hour Tracking

Employees previously exempt from overtime may not have had hours tracked previously. This needs to change now to ensure that accurate reporting is completed and overtime pay is awarded when these thresholds are met. Be sure your company is tracking all hours worked.

#2: Allot for Overtime Pay

Companies will need to pay more for employee services. If the business typically has well-paid employees falling into this range of pay, that means overtime pay applies – meaning time and a half for those individuals. This increases the costs companies payout and may impact profit margins and prices of services to compensate for costs.

#3: Complete a Compensation Plan Review

Ensuring fair pay for all employees is always good practice. Your company may find that now is the right time to complete a compensation plan review to determine if employees are earning along the lines of their responsibility level. It may be time to adjust how you compensate new employees coming into the business. Or, for companies worried about the impact of the new overtime rule, it may be necessary to adjust how many hours employees are working to reduce the risk of paying out overtime. 

#4: Communicate with Employees

It’s essential that all employees understand the changes required. For some, this will be well-earned and expected. For others, a change to earnings can be significant. You’ll need to discuss the company’s policies regarding overtime carefully. This may mean alerting employees to their responsibilities in alerting management when they are close to reaching overtime limits. You may want to ensure employees understand rules on reaching such limits.

#5: Communicate with Management

All levels of management need to recognize which employees may not qualify for overtime pay that did not before within your company. This may mean shifting responsibilities to accommodate to minimize the risk of paying overtime costs out. Management should recognize their role in tracking these employee’s hours.

The Department of Labor last changed and updated these rules in 2004. The new adjustments, again going into effect on January 1, 2020, are significant and will result in over a million workers being paid more. Allow Employers Advantage to help your business to make sense of this implication on operations. Our team can provide one-on-one support to ensure your company is on track.