On September 24, 2019, the U.S. Department of Labor (DOL) announced its plans to update the rules of the Federal Fair Labor Standards Act (FLSA) effective January 1, 2020. It is estimated that up to 1.3 million workers will become newly eligible for overtime pay due to the updates applied in the earnings thresholds necessary to exempt executive, administrative or professional employees from the FLSA’s minimum wage and overtime pay requirements.The DOL is updating both the minimum weekly standard salary level and the total annual compensation requirement for “highly compensated employees (HCEs)” to reflect growth in wages and salaries, which were last accounted for in 2004. The DOL believes that this update will help maintain the original purpose of the salary level test and will help employers more readily identify exempt employees. The next stage of the project includes revisions to the special salary levels for employees in U.S. territories and the special base rate for employees in the motion picture producing industry.
The DOL has shared that this new rule brings a more common-sense type approach that offers consistency and certainty for employers, as well as clarify and prosperity for American workers. And, for the first time in 15 years, American workers will see an update to the FLSA overtime regulations that will in turn place overtime compensation into the pockets of more than a million working American people.
The DOL estimates this rule will transfer income from employers to employees in the form of wages by an annualized amount of $298.8 million. The majority of these transfers will be attributable to the FLSA’s overtime provision and a smaller share will be attributable to the FLSA’s minimum wage requirement.
A review of the key provisions:
- Raising the “standard salary level” from the currently enforced level of $455 to $684 per week (equivalent of $35,568 per year (full year)/per worker);
- Raising the total annual compensation level for HCEs from the currently enforced level of $100,000 to $107,432 per year;
- Allowing employers to utilize non-discretionary 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; and
- Revising the special salary levels for workers in U.S. territories and in the motion picture industry (rules under development).
In addition, the DOL has announced their intention to continue routine updates of the standard salary and HCEs total annual compensation levels more regularly in the future through notice-and-comment rulemaking.
A breakdown of the final rule by the numbers:
- $684 per week – new salary requirement. This amount was increased from $455 per week. The new equivalent level is $35,568 per year.
- $107,432 – total HCE compensation threshold. This amount was increased from $100,000 annually.
- 10% – amount of the standard salary level of final rule allows employers to cover with non-discretionary bonuses and incentive payments that are paid annually or more frequently.
- $1.3 million – estimated number of current exempt workers the DOL estimates will potentially become eligible for overtime.
- $298.8 million – estimated amount of extra pay workers may receive each year.
- $455 per week – special salary level for workers in Puerto Rico, U.S. Virgin Islands, Guam, and the Commonwealth of the Northern Mariana Islands.
- $380 per week – special salary level for workers in American Samoa.
- $1,043 per week – “base rate” threshold for employees in the motion picture industry.
What comes next?
Employers need to do their homework – as the new rules have been released and the fourth quarter is upon us, it is highly recommended that HR and/or Payroll Professionals immediately begin pulling data for exempt workers earning below the new threshold level. Upon review of budget, consideration should be given for which positions may need to be reclassified, restructured, and where salary adjustments should be applied, if applicable. In addition, timing and communications should be considered and defined. For compliance purposes, the appropriate testing criteria should be applied. And, of course, document your process and results in case of an audit. It is also recommended that you seek guidance from your legal counsel and/or HR Consultant should you require any assistance with this project.
Areas of focus to help ensure a successful action plan:
- Review job descriptions
- Review budgets
- Develop training materials
- Define communications strategy
- Document action plan
- Review compliance requirements
- Seek legal guidance/HR consultant support
Lastly, don’t forget to update your Employee Handbooks and Policies and Procedures to reflect any changes made regarding these new regulations.
Also, continue to monitor information shared by the DOL for updated clarification and guidance on these final rules. AP Benefit Advisors will continue to keep you informed as we become aware of any new and breaking information.
Links: U.S. Department of Labor | Final Rule: Overtime Update
