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October, 2019

DOL Releases Updated FLSA Overtime Rule

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DOL Releases Updated FLSA Overtime Rule

Ever since a federal judge in Texas declared the 2016 updates to the FLSA overtime rule invalid, employers have continued to use the thresholds established in 2004. With the Department of Labor’s release of a new FLSA overtime rule, those thresholds are set to change on January 1, 2020.

The new standard salary level employers will need to use for determining which employees are eligible for overtime pay is $35,568 per year for a full-year worker. Let’s take a look at what the FLSA overtime rule is, what has changed, and what this means for employers.

W-2 Vs. Final Pay Stub

What is the FLSA Overtime Rule?

The Fair Labor Standards Act (FLSA) states that nonexempt employees must receive overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rates of pay. The FLSA does not require overtime pay for work on Saturdays, Sundays, holidays, or regular days of rest unless overtime is worked on such days.

FLSA Timeline: View a history of the ongoing debate over the FLSA overtime rule.
  • November 23, 2016: Just days before the new FLSA overtime rule was set to take effect, a Texas district court judge issued a nationwide injunction blocking the rule in response to a hearing where 21 states argued the Department of Labor (DOL) had exceeded its authority.
  • December 1, 2016: On the original FLSA overtime rule effective date, the DOL filed an appeal of a federal judge’s decision to block the updated overtime rule.
  • December 8, 2016: The DOL filed a motion for an expedited briefing of its appeal.
  • January 20, 2017: The Trump Administration released a memorandum that halted all proposed federal regulations.
  • January 26, 2017: A federal appeals court granted an unopposed motion filed by the DOL to extend their briefing deadline to March 7.
  • July 26, 2017: The DOL issued a request for information to receive overtime rule feedback from employers.
  • September 4, 2017: The Justice Department requested the federal appeals court to dismiss the DOL’s appeal of the overtime rule.
  • September 24, 2019: The U.S. Department of Labor issued a final rule raising the salary threshold for white-collar exemptions from overtime pay to $35,568.
W-2 Vs. Final Pay Stub

WHAT IS THE NEW FLSA OVERTIME RULE FOR SALARIED EMPLOYEES?

On September 24, 2019, the U.S. Department of Labor (DOL) announced a final rule to raise the standard salary level from $455 per week to $684 per week (or $35,568 per year). This increase will make over 1 million workers newly eligible for overtime pay beginning January 1, 2020.

Use of Nondiscretionary Bonuses and Incentive Payments

Employers will be permitted to use nondiscretionary bonuses, commissions, and incentive payments to satisfy up to 10 percent of the minimum salary requirement. This applies to administrative, professional, and executive exemptions as long as these forms of compensation are paid at least annually.

Employers are also permitted to make a final catch-up payment within one pay period after the end of the year to bring an employee’s compensation up to the required level. This payment may be up to 10 percent of the total standard salary level for the preceding year. This catch-up payment will only count toward the prior year’s salary and not toward the salary amount in the year in which it is paid.

Highly Compensated Employees

The DOL has set the total annual compensation requirement for highly compensated employees at $107,432 per year.

W-2 Vs. Final Pay Stub

How Does the Updated FLSA Overtime Rule Affect Employers?

Employers will need to follow the same process they did in 2016 - review all employees to ensure they are properly classified as either exempt or nonexempt. This can be determined by understanding what constitutes a white-collar employee and using the DOL duties tests.

What is a White-Collar Employee?

The white-collar exemptions cover employees who are employed in a bona fide administrative or executive capacity, as well as most professionals. The minimum salary requirements do not apply to the following types of professionals:

  • Outside Sales
  • Doctors
  • Lawyers
  • Teachers
  • Computer Employees: They have their own special minimum pay requirements

DOL Duties Tests

The DOL has duties tests in place to help employers determine if their employees are subject to the FLSA overtime rule, dependent on a series of requirements. Job titles do not determine exempt status. There are three different exemption types employers can review to determine exemption status:

  • Executive Exemption: The employee must customarily direct the work of at least two or more full-time employees and have the authority to hire or fire other employees.
  • Administrative Exemption: The employee’s primary duty must be the performance of office or non-manual work directly related to management or general business operations and include the exercise of discretion and independent judgment.
  • Professional Exemption: The employee’s primary duty must be the performance of work requiring advanced knowledge and either be in a field of science or learning.

In each case, all the tests for each exemption must be met for an employee to qualify. View these duties test requirements in their entirety, along with additional requirements for other types of workers, here.

State Overtime Exemption Rules

Employers shouldn’t forget to review state overtime exemption rules, especially those operating in multiple states. The general rule of thumb is to abide by the rule that provides the most protection to the employee. If the salary threshold is greater in a state that has its own exemption tests, the employer must satisfy whichever threshold is greater.

What if Exempt Employees Are Not at the Salary Threshold?

Employees who are currently classified as exempt, but are not making at least $684 per week, will either need to be handled one of two ways:

  • Receive a pay increase to the new threshold to keep their exempt status.
  • Reclassify as non-exempt, and paid both minimum wage and overtime for all hours worked over 40 in a week.
W-2 Vs. Final Pay Stub

What Steps Should Employers Take Moving Forward?

To ensure compliance, employers should conduct the following audits of their business processes:

  • Review employee classifications each year and adjust exemptions as needed.
  • Review time tracking processes to make sure hours worked are being captured accurately.
  • Review payroll processes for any issues with accurate paychecks.

How aps can help

With the new FLSA overtime rule, employers will need to make sure they are accurately tracking employees’ time and that reclassified employees comply with the same policies as all other non-exempt employees.

APS’ Attendance solution automatically tracks employees by classification, making it easy to run reports for salary exempt versus salary nonexempt employees per pay period and ensure FLSA compliance.

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