FLSA Overtime New Rule

Rocco E. Cozza • December 5, 2019

The Fair Labor Standards Act or FLSA Overtime rules affect millions of small businesses across the country. The overtime rules dictate the types of employees that are exempt from overtime based on their job duties and salary. On September 24, 2019, the U.S. Department of Labor announced a final rule to make nearly 1.3 million American workers newly eligible for overtime pay. This change can have a broad sweeping financial impact on small businesses and small business owners. This is something you need to be aware of.

Prior to the rule taking effect, to meet the first part of the overtime exemption, employees need to be paid $455 per week on a salary basis. This is not a high threshold for most employers as it equates to about $11/hour.

FLSA Overtime Earning Threshold Increases

Beginning in January 2020, employees that otherwise meet the exemption test may now be eligible based on their compensation. The final FLSA overtime rule updates the earnings thresholds necessary to exempt executive, administrative and professional employees from the FLSA overtime pay requirements. However, the final rule allows employers to count a portion of certain bonuses/commissions towards meeting the salary level. This may help dampen the impact of the new rule.

In the final rule and as of January 1, 2020, the Department of Labor is:

raising the “standard salary level” from the currently enforced level of $455 per week to $684 per week (equivalent to $35,568 per year for a full-year worker);
raising the total annual compensation requirement for “highly compensated employees” from the currently enforced level of $100,000 per year to $107,432 per year;
allowing employers to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices;

The final rule takes effect on January 1, 2020, so this is something you should be thinking about now.

FLSA Overtime New Rule: What does it mean for employers?

Many clients have asked what this FLSA overtime rule can mean for employers. If certain exempt employees are making more than $455 but less than $684 per week, on January 1, 2020, they will be entitled to overtime for every hour worked over 40. This is a good time to conduct an employee and compensation assessment to determine any potential liabilities or financial obligations going forward into 2020.

A few points to consider:

If an employee is exempt prior to the new rule taking effect and is working more than 40 hours on a consistent basis, you should calculate the cost of overtime obligations (1.5 x the hourly rate for every hour worked over 40 in a week) versus increasing the employee’s salary to meet or exceed the threshold.
If an employee is exempt prior to the new rule taking effect and is working more than 40 hours on an inconsistent basis, you should consider monitoring hours closely and requiring written approval to work overtime.
In the event a few employees are exempt prior to the new rule taking effect and are working more than 40 hours on a consistent basis, you should calculate the cost of hiring a part-time worker to cover the excess hours versus the cost of paying overtime compensation for all hours worked over 40 in a week.

The new FLSA overtime rule can have a financial impact on small and large businesses alike. However, there are simple solutions to lessen, if not eliminate the financial impact.

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