DOL changes overtime equation

Overtime Changes Effective January 1, 2020

On September 24, 2019, the U.S. Department of Labor (DOL) issued a final rule that will increase the threshold salary requirement necessary for employees to be exempt from minimum wage and overtime requirements under the Fair Labor Standards Act (FLSA). Assuming that nothing is done to change the requirements, the final rule goes into effect on January 1, 2020.

What has changed

Under the DOL’s final rule:

• The standard salary level for exempt employees will increase from $455 per week to $684 per week, which is the equivalent of $35,568 annually (an increase from $23,660).
• To meet this threshold, employers will be permitted to use non-discretionary bonuses or incentive payments (including commissions) that are paid at least annually to satisfy up to ten percent (10%) of an employee’s standard annual salary requirement.
• Employers will also be permitted to make a “catch-up” payment to salaried employees who do not earn enough in non-discretionary bonuses or incentive pay in a given year.
• The salary threshold for the “highly compensated employee” exemption will increase from $100,000 to $107,432 (though employers should keep in mind that this exception does not apply in certain States, such as Illinois).

The DOL also announced that it intends to adjust these salary thresholds more frequently in the future.

What has not changed

Employers should recognize that the DOL has not changed:

• any of the applicable “duties tests” for white-collar exempt positions.
• any other requirements applicable to “computer exempt” employees, outside sales positions, or any other exemptions.

What to do

In the next 90 days, employers should:

• Carefully evaluate data relating to salaried, exempt employees who are currently earning close to, but less than the new salary threshold.
• Consider increasing salaries or creating bonuses or incentive pay programs to meet the new rule, or consider treating some of these positions as non-exempt.
• Carefully review job descriptions before making significant pay changes for affected employees to make sure that they meet the applicable duties tests and all applicable requirements.
• In cases when employees will be treated as non-exempt beginning January 1, update affected job descriptions and be prepared to limit the risk of unexpected increased labor costs.
• Take into account any benefits-related issues that may come up in connection with any change in compensation structures.

Please contact any Laner Muchin attorney with whom you have a relationship if you have questions or concerns about these changes or would like guidance on what steps to take to prepare for these new rules.

This blog was written by Peter Gillespie at Laner Muchin, author of our Illinois Human Resources Manual. You can find the original blog post and their Fast Laner newsletter on their website.