On September 24, 2019, the U.S. Department of Labor announced its final ruling regarding current overtime rules and regulations. So what exactly do the new DOL overtime rules say? How will the ruling affect business owners and their employees’ wages? When do changes need to be made? To answer those questions and more, we spoke with an expert on the topic.
Let's meet our expert
Louis Lessig is a labor and employment litigator and partner at Brown & Connery, LLP. With more than 20 years of experience in the field, he’s got a wealth of information to share. And that’s exactly why we sat down with him to dive into the Department of Labor’s newest labor rules. Read on to learn about the ruling’s most important points, how it could affect you and your business, and the smart next steps to consider.
What do the Department of Labor’s newest overtime changes in 2019 mean for me and my company?
1. For those who don’t know, can you explain a bit about the new DOL overtime rules?
The latest changes are designed to implement and increase the threshold amount, below which employees are entitled to received overtime if they work more than 40 hours. The overall notion is that the regulations in this area have not changed since 2004 and were more than due for an increase. There are employee groups who feel that the Department did not go far enough and employer groups who think that things went to far. As a practical matter, that likely means that the Department did its job in landing at the changes that are now set to go into effect on January 1, 2020 for all employers in the U.S. with some limited exceptions.
2. Can you explain the difference between exempt and non-exempt employees? How do employers classify their employees’ FLSA status?
There is a three-part test that employers need to go through to determine if someone is exempt or not.
The first part is for employees (as of January 1, 2020) who make less than $684 per week ($35,568 per year) or Highly Compensated Employees [HCE] making less than $2,066 per week ($107,432 per year). All of these employees are considered non-exempt or overtime-eligible under the regulations. If they work any time beyond 40 hours per week, they are entitled to overtime payments.
If an employee is making at least these minimums in their wages, then we move to the second test. This ensures the employee is being paid at least a fixed pre-determined amount per week.
Employees must be making at least the numbers above, with limited exceptions. Furthermore, an employee must be paid this amount every week.
Assuming that is the case, you can now move to the final part, which is the duties test. This is where you look to see if their actual job duties are such that the individual would qualify as exempt under an administrative, executive or professional exemption.
Also one could be a computer employee or an outside sales person, which are also dealt with differently. For all of these potential exemptions, the best place to go for a specific description of the exempt categories is via the DOL. To determine what a particular employee is, an employer must go through all three parts of the test listed above.
3. How do the 2019 DOL overtime rules affect employers in the U.S.?
The new DOL overtime rules go into effect on January 1, 2020 and make three significant changes for all employers.
First, the salary level has increased from $455 to $684 per week.
Second, the HCE threshold has increased from $100,000 to $107,432.
Lastly, now up to 10% of the threshold salary level can be made up by non-discretionary bonus and/or commission.
All of these changes mean employers need to assess which employees were paid between $455 and $684 to see if they need to be exempt. If so, what needs to change economically to get there? This likely means increased labor costs as of January 1 for all employers who choose to increase wages in response to the same.
“I believe that this is an opportunity for employers to truly assess their workforce, their needs and asks, as well as their realistic company culture.”
4. What do you think are the most important takeaways/actionable points for employers?
With these new DOL overtime rules, employers must decide now who is in the delta between $455 and $684. Presuming their duties would make them exempt, employers need to decide whether or not to raise their salaries to meet the new threshold. Of course that is not the only option. Employers could not change anything and strictly enforce overtime policies. Or they could hire more staff to ensure that employees do not earn overtime. They could also do a hybrid of these options, which may be effective depending on the organizational culture and need.
5. What’s the best way for employers to introduce new policies at this time?
I believe this is an opportunity for employers to truly assess their workforce, their needs and asks, as well as their realistic company culture. Once an employer knows the answers to these concerns, then they can look toward the best manner to introduce policies in accordance with the overtime changes. That said, given the time of year, I would suggest seeking to achieve this result before Thanksgiving to allow employees to consider and assess the potential changes, before the holiday season is upon us.
6. Keeping track of non-exempt employees’ hours is not a new addition to the Fair Labor Standards Act (FLSA), but do you think there is more reason to implement time tracking now?
Tracking time has always been critical to the efficient operation of any business and now is no different. However, the tracking needs to be done in accordance with policy and in keeping with your company culture to ensure congruence from policy to practice. Time keeping is not difficult and especially in the service industry is a regular staple in many ways.
7. What are the benefits to companies implementing a time tracking system?
The analytics an employee time tracking system can provide allow employers to truly understand where and how employees are working. This ties into overall productivity and the bottom line of the organization. This also allows an organization to clearly defend any type of future FLSA litigation, since you would already have the relevant records, which you are required to maintain as an employer. It often also removes human error from the calculation process and may also give true labor costs for various operations.
8. What are the most frequent questions you’re fielding at the moment? Or, alternatively, your #1 piece of advice to business owners now?
STOP! Consider the honest culture you have, is that what you want for your company? How many people do you have in the window discussed above? If you have a fair amount then take the time to truly assess these issues as soon as possible. At this point, litigation is unlikely to stop this regulation at this juncture. Everyone agrees that the threshold number needs to increase, and it has, so do your planning now. Finally, make sure you also consider salary compression. This is the impact on exempt employees when they see lower paid employees earning more so they can also be considered exempt. Did they also get a raise? If not, that is an issue you must address before those employees leave.
A big thanks to Louis Lessig for answering these questions regarding the DOL’s ruling on overtime regulations. Let us know what you think in the comments below. And if you’d like to learn more, don’t miss our post on the most frequently asked questions related to overtime regulations in the US.
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