By Sandy Cody
Overtime Pay Law Is Final! Learn How It Impacts Your Business
On September 24, 2019, the U.S. Department of Labor announced a final rule to make 1.3 million American workers newly eligible for overtime pay. Make sure you are prepared and stay in overtime compliance. The new rules begin effective January 1, 2020.
The Department of Labor sets overtime wage and salary standards. To receive overtime pay of 1.5 times their hourly rate, employees must work more the 40 hours in a work week. (Time off does not factor into the 40 hours.)
In addition, they must have an annual salary of less than $35,568.
Employees earning more than $35,568 and meet the three-question test that defines their responsibilities as a salaried employee. For additional information visit www.dol.gov/whd/overtime2019.
Here’s What’s Changed:
- Raising the “standard salary level” from the currently enforced level of $455 per week to $684 per week (equivalent to $35,568 per year for a full-year worker);
- Raising the total annual compensation requirement for “highly compensated employees” from the currently enforced level of $100,000 per year to $107,432 per year;
- Allowing 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; and
- revising the special salary levels for workers in U.S. territories and the motion picture industry.
3 Question Test:
What determines if an employee falls within one of the white-collar exemptions? To qualify for exemption, a white-collar employee generally must:
- be salaried, meaning that they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”);
- be paid more than a specified weekly salary level, which is $913 per week (the equivalent of $47,476 annually for a full-year worker) under this Final Rule (the “salary level test”); and
- primarily perform executive, administrative, or professional duties, as defined in the Department’s regulations (the “duties test”).
Certain employees are not subject to either the salary basis or salary level tests (for example, doctors, teachers, and lawyers). The Department’s regulations also provide an exemption for certain highly compensated employees (“HCE”) who earn above a higher total annual compensation level ($134,004 under this Final Rule) and satisfy a minimal duties test.
The Final Rule by the Numbers:
- $684 per week – salary requirement – up from the currently enforced level of $455/week (level is equivalent to $35,568 per year)
- $107,432 – total HCE compensation threshold – up from the currently enforced level of $100,000 annually
- 10% – amount of the standard salary level the final rule allows employers to cover with nondiscretionary bonuses and incentive payments that are paid annually or more frequently
- 1.3 million – estimated number of currently exempt workers who the Department estimates will, without intervening action by their employers, become eligible for overtime
- $298.8 million – estimated amount of extra pay workers will receive each year
- $455/week – special salary level for workers in Puerto Rico, U.S. Virgin Islands, Guam, and the Commonwealth of the Northern Mariana Islands
- $380/week – special salary level for workers in American Samoa
- $1,043/week – “base rate” threshold for employees in the motion picture industry
- Federal Register notice for the final rule
- News release (9/24/2019): U.S. Department of Labor Issues Final Overtime Rule
- Fact sheet
- Frequently asked questions
- Small Entity Compliance Guide
- Learn more about overtime pay
Sandy Cody, president of Draker Cody, Inc., has more than 30 years of management and human resources experience and holds a Masters Degree in Management with a focus on Human Resource Management and Organizational Development.