Last week, the United States Department of Labor (DOL) announced a final overtime rule, which will make an estimated 1.3 million American workers eligible for overtime pay under the Fair Labor Standards Act. Don’t shoot the messenger. The rule sets the minimum salary threshold for overtime eligibility at $35,568. That “standard salary level” breaks down to $684 per week, up from the previous $455 per week set in 2004. The rule also does the following:
- Raises the total annual compensation for “highly compensated employees (HCE)” from the current level of $100,000 to $107,432
- Allows employers to use nondiscretionary bonuses and incentive payments (think commissions) that are paid at least annually to satisfy up to 10% of the standard salary level
- Revises special salary levels for workers in U.S. territories and the motion picture industry (this bit doesn’t apply much to construction, but hey, now you know)
The rule will go into effect Jan. 1, 2020. The original draft of the final rule set the minimum salary threshold at $35,308, slightly lower than the final version. The DOL estimates that 1.2 million workers will be entitled to overtime pay as a result of the new minimum threshold, and 101,800 workers will be entitled to overtime pay as a result of the new HCE level. Find out below how you should be planning.
How Your Company Should Prepare
To state the obvious, you should have started preparing your company yesterday. That preparation could mean one of two things:
- Figure out how you are going to pay your workers who are now eligible for overtime pay
- Give those employees a raise so they are above the new threshold
If you aren’t already using some process or tool to accurately track your employees’ time, you should be looking for one now. Also consult your human resources team and employment legal counsel to ensure your employees are all correctly classified under the new rule. The final rule does not change the act’s duties test.
The new rule’s overtime exemptions only apply to white-collar professionals, including executive, administrative, professional and outside sales employees, as well as some computer employees. Find out more about exemptions from the final rule here. The DOL expressed its intent to establish a plan for more frequent updates to the rule, but did not give a timeline for doing so. Click here for answers to frequently asked questions about the rule.
The rule will hit midsize companies hardest, but if you’re feeling the burn from the new threshold, remember it’s far lower than the original 2016 proposal of $47,476.