After a long period of limbo and administrative changes, employers finally have all the information they need from the U.S. Department of Labor (DOL) regarding new overtime standards.
Last month, the DOL updated the overtime thresholds that determine which employees are eligible for overtime and which are exempt. These thresholds had last been updated in 2004. The DOL eliminated the automatic threshold escalation included in previous regulatory drafts, which allows employers to conduct longer-term wage and hour planning.
- Standard salary level for exempt (salaried) employees is currently set at $455 per week (or $23,660 per year). As of January 1, 2020, this will increase to $684 per week (or $35,568 per year).
- Annual total compensation amount for a “highly compensated employee” is currently set at $100,000. As of January 1, 2020, this will increase to $107,432. Note: Pennsylvania does not recognize this exemption.
In addition to these new wage thresholds, the DOL’s final rule also allows “nondiscretionary bonuses and incentive payments (including commissions)” to count toward up to 10 percent of an employee’s standard salary level.
As a result of the final rule, an additional 1.3 million workers’ statuses will be changed from salaried/exempt to hourly/non-exempt, making them eligible for overtime pay. The new standards take effect on January 1, 2020, so employers have just over three months to adapt.
Preparation tips for new overtime standards
- Develop job descriptions: Job descriptions are an essential tool for assessing overtime eligibility and impact. If any positions lack a description, now is the time to craft them.
- Conduct staffing and compensation analysis: Review of your current staffing situation to discern which employees will need a status change to hourly/non-exempt, making them eligible for overtime pay, because their wages do not meet the new salary threshold. Once you have a sense of employee eligibility, you can budget accordingly.
- Notify affected employees: Pennsylvania law requires employers to provide written notification to employees before changing their status to exempt or non-exempt. Make sure to allow time for the development and distribution of required notices and for any questions from affected employees.
- Track hours worked: A reliable tracking system will help you pay the correct overtime earned, or give you an idea of which employees are close to crossing the overtime threshold under the new rules. Hourly tracking can also have other important regulatory uses, including workers compensation, benefit eligibility, paid time off use, job costs for government contracts, Family Medical Leave (FMLA) and others.
- Research state impact: Depending on where your organization does business, there may be state-level regulations that impact the administration of overtime pay. Many states follow the federal standards, while others have different obligations or treatment of certain roles. In those cases, employers are required to apply the regulations that are most generous to the employee.
Decisions around how to assess and administer this overtime expansion are not black and white, and involve many sensitive factors like staffing levels, employee morale and budgeting. RKL’s Human Capital Management team can help your organization take a comprehensive view of all relevant factors to ensure compliance with these new federal regulations. Contact me to start the conversation.