The U.S. Department of Labor (DOL) has issued revised overtime regulations under the Fair Labor Standards Act (FLSA) which will expand the number of workers nationwide who are eligible for overtime compensation. To avoid a compliance issue, employers should familiarize themselves with the new rules now and plan all necessary changes prior to the first of the year. The changes primarily involve raising the salary threshold for the administrative, executive, and profession al overtime exemptions.

The increase in the salary threshold from $23,660 per year to $35,568 per year – the first increase in 15 years – represents a 50% increase that the DOL estimates will result in 1.3 million currently exempt employees becoming non-exempt; in other words, newly eligible for overtime pay. The new regulations also increase the compensation level for ” highly compensated employees” who are exempt from overtime regardless of job duties from $100 ,000 to $107,432 per year, a change which affects a much smaller category of workers. Finally, the new rules allow employers to use non-discretionary bonuses and incentive payments (including commissions) that are paid on an annual or more frequent basis to satisfy up to 10 percent of the standard salary level (for purposes of determining whether the exempt salary threshold has been met).

To assist employer s in navigating these changes, we are providing the following comparison chart:

OLD RULE NEW RULE (as of 1/1/2020)
To be exempt from overtime, employees must
fall within one of the administrative, executive,
and professional overtime exemptions and
must be paid at least $455 per week ($25,660
per year)
To be exempt from overtime, employees must
fall within one of the administrative, executive,
and professional overtime exemptions and
must be paid at least $684 per week ($35,568
per year)
The total annual compensation requirement for
highly compensated employees, who are
exempt from overtime regardless of duties, is
$100,000
The total annual compensation requirement for
highly compensated employees, who are
exempt from overtime regardless of duties, is
$107,432
Nondiscretionary bonuses and incentive
payments may not be included in the
calculation of an employee’s salary for
purposes of determining whether that
employee is exempt from overtime
Nondiscretionary bonuses and incentive
payments, provided they are paid at least
annually, may be included in the calculation of
an employee’s salary, up to lOVo of the
standard salary level, for purposes of
determining whether that employee is exempt
from overtime*

*includes a “catch up” provision, as explained below

While the new rules may seem fairly straightforward, they raise potentially thorny issues for employers who may be faced with reclassifying workers, recalculating salaries to determine if they meet the exempt threshold, and revisiting in general the justifications for their current classifications. Sullivan Collins Law Group is available to assist employers with the following compliance issues:

  • Do our current salaried employees actually meet one of the tests for overtime exemption under the FLSA, and have we created job descriptions that reflect those tasks and responsibilities that make such workers exempt?
  • If we are faced with reclassifying currently salaried (exempt) employees to hourly (non­ exempt) by January l51, how do we recalibrate the hours and responsibilities of those workers in a way that still meets our business needs , and how do we transition the employees in a way that minimizes their concerns that they are losing an important status?
  • Do our current bonus and /or incentive payments qualify under the new rules to be calculated as part of our employees’ salaries for purposes of determining whether they meet the exempt threshold, how do we document such payments to sufficiently demonstrate that they qualify (in the event of a DOL audit or investigation), and how do we perform the calculation to ensure we are not exceeding the l 0% limit?
  • Finally, if we classify an employee as exempt and then they fail to earn enough in discretionary bonus or incentive payments in a given year to retain their exempt status, how do we take advantage of the new ” catch up” provision to avoid a compliance violation?
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