Is your organization up-to-speed with the changes to the FLSA?
After years of legal wrangling and a change in administration, adjustments to overtime exemption rules under the Fair Labor Standards Act (FLSA) were announced on September 24, 2019. The Department of Labor (DOL) released the final rule and it went into effect January 1, 2020.
Certain workers may be exempt from the FLSA's overtime rules if they receive a predetermined, fixed salary, which is not subject to reductions in the quality or quantity of work. Previously, their salary must have exceed a certain threshold ($455 per week, or $23,660 per year), known as the salary test. And their job duties were limited to those described in the FLSA's executive, administrative, and professional exemptions.
More Employees Eligible for Overtime
Under the new rule, the minimum salary threshold will rose to $684 per week, or $35,568 per year. Effective January 1, 2020, employees who previously earned between $23,660 and $35,568 are entitled to overtime pay, regardless of whether they perform exempt job duties. The DOL rule also increased the annual minimum compensation for highly compensated employees (HCE) from $100,000 to $107,432.
Previously, the Obama administration issued regulations in 2016 that increased the minimum salary threshold to qualify for overtime exemptions. However, these changes triggered litigation by business groups and many states, and on August 31, 2017, a federal court in Texas issued a final decision striking down the changes.
Get Current, It's 2020
How should your organization address the changes to the FLSA? The first step is to familiarize yourself with the new rule. Start by reading this overview. You'll then want to revisit job descriptions and remove any ambiguity surrounding job duties. Review the actual duties of employees who were exempt before to ensure they are consistent with FLSA exemption requirements now.
Next, examine your organization's process for classifying workers as exempt or non-exempt. Incorrect classifications could burden your business with inflated overtime bills or potential FLSA non-compliance, particularly since the salary threshold increased. The DOL provides extensive guidance on their website to help employers classify workers correctly.
As you assess the effects of the changes, get a count of the current exempt employees making between $23,660 and $35,568 annually, and monitor how many hours they work per work week. Take note of the amount they earn in overtime under the new rule. Determine whether it might warrant raising their salaries to avoid paying more in overtime. For example, if an employee earns a base salary of $32,000 and consistently receives $4,000 to $7,000 in overtime payments, it may make sense to bump their salary over the $35,568 threshold.
Another option to consider would be hiring additional workers, either full- or part-time, to offset those overtime hours that your employees incur.
If your employee time-tracking technology does not integrate with your payroll, now may be the time to consider an upgrade. Since the increases to the FLSA salary thresholds mean more employees qualify for overtime payments, the potential for errors in manual time-tracking systems could help to justify an investment in automated solutions.
Want to learn more?
Replay ADP's 30-minute webinar: "Understanding and Preparing for the New OT Rule Changes"