On September 24, the DOL issued a new overtime rule, hiking the salary cutoff for workers to be classified as exempt from overtime pay from $23,660 ($455/week) to $35,568 ($684/week). The new rule takes effect on January 1, 2020.
There are four significant aspects to the new rule:
- To be exempt from overtime pay requirements, an employee must pass three tests: the salary-level test, the salary-basis test, and the duties test. The new rule, of course, increases the minimum salary for exemption.
- The new rule also makes changes to the salary-basis test, as it allows employers to apportion up to 10% of an employee’s salary to commissions, various bonuses, and other non-discretionary incentives, including safety bonuses and bonuses based on individual and company performance. Employers must proceed with caution: if, for instance, annual bonuses fall short, even by $1, an employee will be entitled to overtime wages for all overtime hours worked that year.
- The new rule increases the salary threshold for highly-compensated employees from $100,000 to $107,432.
- The new rule makes clear that, unlike the 2016 rule, no automatic increases will be imposed. Rather, the DOL intends to more regularly asses the salary levels and issue new rules only after a notice and comment period.
How can employers comply with the new rule? And, are there any special considerations?
Employers have several options for complying with the new rule. They can raise salaries or shift employees from a salaried to an hourly status. Employers can also consider layoffs, limiting or prohibiting overtime, or hiring temporary workers. What works for one employer may not work for another; in the end, any decision requires a careful assessment of the workforce.
One thing employers will need to keep in mind is the impact of the rule change on their retirement and benefit plans. It’s possible that some currently-salaried employees won’t be eligible plan participants if their salary isn’t increased to meet the new threshold. Employers also need to consider the impact on their matching-contribution requirements and the nondiscrimination testing results.
If you have any questions about the new rule or your compliance options, give us a call today.