The federal overtime pay rule takes effect January 1, 2020

If certain employees work more than 40 hours in a workweek, they must be paid time and a half. This requirement can’t be avoided in most cases by giving workers comp time. A federal overtime pay rule that becomes effective on January 1, 2020, impacts which employees are covered by overtime rules. Now is the time to understand what the new rule is and plan ahead for handling your staffing needs in the coming year.

Nonexempt employees

Unless a worker is exempt from the Fair Labor Standards Act (FLSA), the overtime pay rule applies. Exempt employees are those earning a regular salary of more than $684 per week (up from the previous level of $455 per week). This comes out to $35,568 per year. The DOL has indicated it will update the level in the future, but did not say how often this will occur.

To be exempt employees, they must also perform:

• Executive job duties (i.e., they function in a supervisory and management capacity)
• Professional job duties (i.e., jobs that involve specialized education and entail intellectual abilities).
• Administrative job duties (i.e., nonmanual work or office work).

Exempt employees also include those who are “highly compensated.” Under the new rule, this means earning at least $107,432 per year (up from previous $100,000 level).

Covered wages

The overtime pay rule applies to employees’ regular rate of pay or salary. It does not include the value of fringe benefits.

In determining employee compensation, employers can use nondiscretionary bonuses and incentive payments to satisfy up to 10% of the standard salary level. For employers to credit nondiscretionary bonuses and incentive payments toward a portion of the standard salary level test, these payments must be made on an annual or more frequent basis.

Impact on your business

The government predicts that the new rule will cover an additional 1.3 million workers. Now is the time for you to take action to minimize any adverse impact the new rule may have on your company.

• Review the current salary levels of employees. It may pay to increase their levels so they become exempt.
• Based on prior overtime experience, figure what the new rule will cost your company and budget accordingly.

Learn more

Learn more about the new rule from the Department of Labor (DOL). The DOL also offers interactive e-tools to help employers with overtime pay.