Employers beware of new overtime rules.
You may want to cut your overtime expenses and save money by hiring new full-time workers.
That may seem counterintuitive, except for new rules that will become effective in 2020.
More workers will be eligible for overtime pay in 2020 under a new Trump administration policy. This is the result of the U.S. Department of Labor”™s federal overtime exemption rule under the Fair Labor Standards Act for salaried “white-collared” workers.
The Department of Labor estimates at least 1.3 million American employees will be eligible for overtime pay under the new rule. The rule raises the salary threshold for overtime exemption to $35,568 per year, or $684 per week. If you earn less than that, you get overtime pay. More than $35,568, no such pay.
The threshold is currently $23,660 per year, or $455 per week.
The change will require businesses to pay overtime wages to many more employees if those employees work more than 40 hours a week. While this is good news for those 1.3 million workers, it”™s a loss for 2.8 million workers who would have received overtime under the rule proposed by the Obama administration.
This has been a closely monitored issue since 2014 when the Obama administration attempted to increase the salary threshold to $47,476. Also, unlike the Obama proposal, future alterations to the threshold will not be connected to inflation.
The Labor Department said the new rule will transfer about $400 million from U.S. employers to their workers each year for the next 10 years.
Employers will either have to raise these employees”™ pay to the new salary threshold, so they can remain exempt from overtime pay, or convert the employees to non-exempt hourly status and start tracking their hours to pay them overtime.
Some employers may find that it may be less costly to hire additional full-time workers to completely avoid the need to have anyone work overtime.
Employers also will have to conduct employee training for newly non-exempt managers and begin tracking their hours. In addition, employers will need to consider whether to use bonuses, commissions or other incentive compensation as credit to the new salary threshold. Employers should also think about whether they understand what kinds of compensation will have to be included in the “regular rate of pay” for overtime purposes.
The new rule will benefit retail, fast-food and home health care workers as well as other lower-paid workers, such as those who work for nonprofits or political campaigns. Many who work in those industries have been paid just above the $23,660 threshold that has existed since 2004. They have been required to work overtime without extra pay.
Under the new regulation, qualifying employees would receive pay equal to one-and-a-half times their normal pay rate for any additional time beyond the standard 40-hour workweek.
The Department of Labor is allowing employers to use non-discretionary bonuses and incentive payments, including commissions, that employers pay at a minimum annually to satisfy up to 10 percent of the standard salary level.
Until now, only blue-collar workers and professionals who earn less than $23,000 a year can earn overtime pay under federal law, with some exceptions.
The new rules are only the second time the threshold has been updated since 1975, after the 2004 change.
Waiting until the day the regulations are effective is probably not a good idea. Planning should begin right away.
Attorney Reese Mitchell is an associate at Stratford-based Mitchell & Sheahan PC He is involved in handling all types of employment matters, including through all stages of the litigation process. He can be reached at ReeseMitchell@mitchellandsheahan.com or 203-873-0240.
