On January 1, 2020, the Department of Labor’s (DOL) new overtime rules 2020 took effect. The updates to the federal overtime law make more than a million workers in the U.S. newly eligible for overtime pay by boosting the salary threshold from $455/week or $23,660/year to $684/week or $35,568/year. This means that an employee earning less than $35,568 per year must be paid overtime wages if working more than 40 hours in a week. The annual compensation level was also raised for “highly compensated employees (HCEs)”.
The new salary thresholds reflect the growth in employee earnings since the last update was made to the federal overtime law in 2004. According to the DOL, “The final rule updates the earnings thresholds necessary to exempt executive, administrative and professional employees from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay requirements, and allows employers to count a portion of certain bonuses/commissions towards meeting the salary level.”
To develop these new overtime rules, the DOL received public input from listening sessions and written comments from a 2017 Request for Information (RFI). The new federal overtime law gives “employers clear guidance on how to determine whether an employee is exempt” and ends the period of uncertainty that existed after the 2016 update proposal was blocked.
What changed in the federal overtime law 2020?
The new overtime rules update the salary and compensation levels workers need to meet to be exempt. The DOL explains that the key provisions:
Raise the standard salary level from $455 to $684 per week or $35,568 per year for a full-year worker.
Raise the total annual compensation level for HCEs from $100,000 to $107,432 per year.
Allow employers to use nondiscretionary bonuses and incentive payments including commissions to satisfy up to 10 percent of the salary requirement.
Revise special salary levels for workers in U.S. territories and those in the motion picture industry.
Additionally, the DOL makes a commitment to periodically review and update the salary thresholds on a more regular basis. These updates will be made through “notice-and-comment” rulemaking instead of a previously-proposed automatic, formula-based approach.
Job duties test remains unchanged
As under previous versions of the federal overtime law, salaried employees must meet the minimum salary level and pass the FLSA’s job duties test specific to their position to qualify for an exemption. For example, an employee must earn the minimum standard salary requirement of $35,308, and perform executive, administrative, or professional job duties as defined by DOL regulations. Likewise, highly compensated employees can qualify for exemption if they earn more than $107,432, perform office work (no manual labor), and regularly perform at least one of the duties of exempt employees.
It’s also important to note that no changes have been made to overtime protections for police officers, fire fighters, paramedics, nurses, regular laborers, and non-management employees in maintenance, construction, or similar occupations.
Employer compliance options under the new law
Businesses must review and understand that these new overtime rules could make previously exempt employees nonexempt. In order to maintain compliance, employers can choose to either:
Raise the employee’s salary to meet the minimum requirement as long as they pass the job duties test.
Reclassify the employee as non-exempt and pay overtime wages when required.
Limit overtime pay opportunities.
Whatever route is chosen, it’s important to evaluate the options and estimate costs. Take a close look at each employee to understand if that worker works extra hours on a regular basis because it may be worthwhile to raise their salary and make them exempt if they satisfy the job duties test. Overtime is 1.5 times the employee’s regular pay rate for any hours worked over 40 in a workweek—and that can add up if left unchecked.
It’s crucial to communicate with your employees about the new overtime rules as well as any company policy changes that are made in regards to overtime. In particular, if a company decides to limit or ban overtime, employees need to know now.
To help maintain compliance, many leading organizations use time and attendance software to ensure accurate timekeeping records. Time and attendance software helps employees track hours worked, allowing the business to keep an eye on overtime costs as well as provide any evidence needed to demonstrate compliance with federal and state regulations.
Check your state overtime regulations
While all businesses must comply with federal law, be aware that it’s just the minimum requirement. It’s equally important to ensure your business is complying with state laws and regulations—and some states do have different limits.
For Example, California’s minimum salary exemption is $49,920 for employers with 25 employees or less and $54.080 for employers with more than 25 employees. Other states that deviate from the federal law include Alaska, Colorado, and Nevada. Be sure to double check with your state department of labor or consult your employment attorney to ensure your business is meeting state requirements.
Stay compliant with federal and state overtime regulations
When your business is growing, you need software and services that work as hard as you do. That’s why busy entrepreneurs and business executives rely on Asure to keep accurate time records, automate payroll preparation, and maintain compliance with changing FLSA and overtime laws. Asure’s staff of dedicated professionals and tax experts monitors federal and state regulations that affect your growing business including payroll, tax, and benefits administration.