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What does the Department of Labor's new rule mean?

After three years of back and forth discussion regarding the new limits of the Overtime Rule, the U.S. Department of Labor (DOL) has finally reached a conclusion. Their ruling will extend overtime pay to 1.3 million American workers under the Fair Labor Standards Act (FLSA).

DOL Wage and Hour Division Administrator Cheryl Stanton has commented on the rule. She says the department considered public input and insight, as well as prior calculations, when coming to this final decision. Additionally, the DOL press release quotes her as saying, “The Wage and Hour Division now turns to help employers comply and ensure that workers will be receiving their overtime pay."

According to the press release, the final rule accounts for an increase in employee wages since 2004, the last time the DOL established salary thresholds. Updating earning levels changes when it’s possible to classify certain employees as exempt due to requirements set forth by the FLSA regarding minimum wage and overtime pay. This particularly applies to executive, administrative or professional employees. Additionally, employers can now consider a certain percentage of bonuses/commissions as part of an employee’s earning threshold.

The new rule also does the following:

  • Increases the standard salary threshold from $455 to $684 weekly, or to an annual income of $35,568;
  • Increases a “highly compensated employee’s (HCE's)” yearly earnings from $100,000 to $107,432;
  • Permits employers to count certain bonuses and incentive earnings, such as commissions, for up to 10 percent of an employee’s earning threshold; and
  • Adjusts the salary level for employees located in U.S. territories and for those working in the movie industry.

This ruling is set to go into effect on January 1, 2020.

Increased salary thresholds have been forthcoming and expected since the last proposed rule change in early 2016. After this proposal, many people made their opinions on the matter known. They provided feedback and commentary on the Department’s 2017 Request for Information, were active in 2018 listening sessions about earning level regulations and gave input on the Notice of Proposed Rulemaking. Most concurred an update to salary limits was necessary because of economic growth and changing pay practices that have occurred since 2004.

On November 22, 2016, the U.S. District Court for the Eastern District of Texas negated that year’s final overtime rule. The U.S. Court of Appeals for the Fifth Circuit has suspended this appeal until the DOL could offer new regulation that would adjust the salary threshold to reflect current times. While the matter was pending, DOL referred to the 2004 levels.

Employers must take steps to comply with this new rule, including:

  • Determining if they have any exempt workers who earn less than the new salary threshold;
  • Looking over their company’s budget;
  • Considering if it’s possible to restructure positions;
  • Thinking about positions which could be given a salary increase or be categorized differently as nonexempt;
  • Calculating the costs of increasing employee salaries’ according to the new earning levels, as well as the cost to reclassify employees as exempt and pay them overtime;
  • Determining how different labor costs could affect a company’s finances; and
  • Consulting with counsel to evaluate current pay practices and Employee Handbooks

You can learn more about the final rule at: www.dol.gov/whd/overtime2019/.

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