New Rule will affect millions - After the 2016 regulation (which had a much higher threshold) was invalidated by a U.S. District Court, a new regulation was finalized on September 24, 2019, by the U.S. Department of Labor. However, changes in the regulations do not formally take effect until January 1, 2020. Because of that, employers still have time to make the adjustments necessary to be in full compliance.
The main rules for overtime pay are included in the Fair Labor Standards Act (FLSA). Notably, employees who are not exempt under the FLSA must be paid the overtime rate of one-and-a-half times their regular pay rate for hours worked in excess of 40 hours. Employers may be substantially penalized for violating these rules.
Per DOL regulations, each of these 3 tests must be met for employees to be exempted from overtime pay:
- The salary basis test: The employee must be paid a predetermined salary that is not subject to reduction because of variations in the quality or quantity of work performed.
- The salary level test: The amount of salary paid must meet a minimum specified amount.
- The duties test: The employee’s job duties must primarily involve executive, administrative or professional duties as defined by the DOL regulations.
Ultimately, the DOL raised the current weekly level to $684 (up from $455)—or $35,568 a year (up from $23,600)—which is a 50% increase from the previous level. As things stand now, workers earning less than this amount will be entitled to overtime pay as nonexempt employees, regardless of their job responsibilities.
Prior to issuing the new final rule, the DOL had last updated these regulations in 2004. While the 2016 regulations had considerable opposition and were ultimately invalidated, we do feel that the new ruling for the 2020 regulation will take effect without a substantial challenge.
Another slight change, the annual pay threshold for highly compensated employees was increased from $100,000 to $107,432. Employees earning above this threshold, regardless of whether their jobs would be classified as non-exempt under the “duties” test, may still be treated as exempt and are therefore ineligible for overtime pay.
Being forewarned is being forearmed: With the looming deadline of January 1, 2020, employers still have time to institute changes to bring their organizations into full compliance. Be mindful that a substantial number of workers who previously didn’t qualify for overtime pay will be eligible going forward.
The new final rule may force employers to re-examine their payroll responsibilities and characterization of jobs. Do not wait to review your organization's compliance. Engage us as your professional business advisers for guidance.
If you have any questions on the above article or need any business advisory services, please contact Murry Guy, CPA at (334) 887-7022 or leave us a message below.