If you’ve been following news from the U.S. Department of Labor, you know that there have been two recent developments in overtime rules that impact companies and the employees that work for them.

First, new requirements for calculating an employee’s regular rate of pay under the Fair Labor Standards Act (FLSA) were recently published. This final rule, a change over 50 years in the making, clarifies prior regulatory language that didn’t fully distinguish modern day benefits and incentives. The DOL’s final rule helps employees and employers alike. For employers, the rule distinguishes a variety of payments as exempt from overtime calculations (full list of payments and benefits are included in the ruling on the DOL website). For employees, this allows companies to provide more benefits and incentives to workers without the worry of having to include these into overtime calculations.

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The second portion of the DOL final rule increases salary thresholds for overtime exemptions. For employees to be considered exempt from overtime they need to meet certain duties tests as well as a salary threshold. Until now, the salary threshold was $23,660/year. With the final rule, that annual threshold increases to $35,568 (ten percent of that number can come from nondiscretionary bonuses and incentive payments, such as commissions). Employees that meet the duties test but fail to meet the salary threshold are considered eligible for overtime beginning 01/01/2020.  A total of 1.3 million workers nationally will be eligible to receive overtime payments, the U.S. Department of Labor says.

With this change, employers should evaluate employees that are currently considered exempt but may make less than the new threshold. For those that aren’t making the minimum, there are a few options to consider:

1. Increase salaries to meet the threshold so they remain exempt – While this may seem to be the easiest approach, it could have adverse impact to hourly workers and may bring up potential wage violations.
2. Pay overtime wages – Paying this newly eligible workforce overtime could lead to increased expenses that an employer hadn’t planned on.
3. Limit overtime – Employers can limit or ban overtime hours, but this could lead to unhappy workers and a disengaged workforce.

Whatever your decision is, make sure to analyze worker data thoroughly to make an educated decision on a path forward. Also, communicate changes with your employees so they understand how this impacts them. Finally, please note that some states, like California, and cities, like New York City, have higher thresholds than the DOL. It is imperative that you review the locations of your employees to better understand the best way to apply FLSA rules.

Net at Work stands ready to assist our clients to respond to these important FLSA changes.  Please contact your Net at Work Account Manager if you would like assistance from one of our consultants in determining what is the best course of action for your organization.