There’s An FLSA Overtime Rule? What’s That?

FLSA overtime rule

Are you aware that the Department of Labor issued a final overtime rule in September? Among other things, it means that starting in 2020, the salary threshold for white-collar employee exemptions increases from $455 to $684 per week.

For employees, this means that more than 1 million people who are not currently eligible for overtime will become eligible at the start of the new year. For employers, it indicates there may need to be a huge shift in company resources.

Here are some common questions about the new overtime ruling and what it will mean for your company.

Q: When exactly does the new overtime rule take effect?

A: It is effective on January 1, 2020, and remains in place until or unless the Department of Labor issues a new ruling that supersedes it.

Q: Does it apply to all employees who meet the threshold?

A: The ruling only applies to certain types of employees. Meeting the salary threshold doesn't automatically make an employee exempt from overtime pay because their job duties must also primarily involve executive, administrative or professional roles, as defined by the federal regulations.

Q: What about employee bonuses and incentives?

A: The new overtime rule also contains some guidance about bonuses and incentives. Employee bonuses and incentive payments paid on a regular basis may be used to satisfy up to 10% of the standard salary. This includes payments made in a commission structure.

There is also a special rule for highly-compensated employees that requires an employee to earn a total annual compensation of at least $107,432, with $684 paid weekly on a salary/fee basis.

Q: How will this affect an employer’s costs and budget?

A: Depending on the composition of the workforce - meaning the number of junior staff members or employees with lower salaries - this could have a big impact on the company’s budget. Employers may need to begin paying overtime for people who are non-exempt and fall below the new threshold, or they may need to pay a higher salary to people who are exempt and fall below the new threshold.

To manage the costs over the long term, employers may also need to do cost/benefit analysis to see which of these two options is more cost-effective: paying overtime or hiring more employees to spread out the work. Both strategies are workable, and both are legal, but they require some strategic planning to operate effectively for your company.

Q: How can we contain the costs involved?

A: Employers will need to train managers on cost containment and how to avoid the need for overtime, or they will simply need to budget for more overtime in the future. Also, it is important to establish a clear employee procedure for approving overtime in advance and tracking the time using a timesheet or digital platform.

Q: Does it matter which state we’re in?

A: Yes. The state matters. While the new overtime rule is a federal law, different states also have different overtime rules. For example, in California, employers must pay overtime for hours worked over 8 per day and/or hours worked over 40 per week. In Pennsylvania, overtime is paid for hours worked over 40 per week only. Be sure to check your state and local laws.

Q: How will this affect morale at my company?

A: This is a great question, and we have good news: The new overtime rule will probably have an overall positive effect on company morale. Your rank-and-file employees could see a significant jump in pay, which will likely make them feel more satisfied with their jobs and their employer.

However, your employees in supervisory positions will also be faced with a new reality where they must carefully adjust to the new overtime rule. You may need to establish new company policies for them to follow. Beware that this could be stressful for your company managers, especially if they are in charge of a large staff of people.

Q: What should we do right now to prepare for the new rule?

A: The first thing you should do right now is to perform an analysis of your existing employee base and identify who will fall above and below the new threshold. Compute how salaries will change and what the overall additional cost will be for your organization.

Next, have an internal discussion to determine how this will affect the management of the company. Will it affect year-end pay increases and will employees still be expecting an additional raise? How will the company handle the jump in costs? How will you roll out all of the new information to your employees?

We strongly advise you to create individual letters for affected employees explaining what payroll amount they will see after the change. Prepare your payroll to continue running smoothly both before and after the change.

Q: What if we’re struggling to cope with this change?

A: This is potentially a huge change for many businesses, especially those with a large number of professional-level employees who are near the established overtime threshold. If your company needs assistance in complying with the new federal overtime rule, The O’Connor Group can help.

The O’Connor Group provides innovative HR solutions and support for companies that are focused on growth and productivity. Reach out to us as soon as possible if you are concerned about being able to meet the January 1 deadline.

Talk to the O’Connor Group!