The U.S. Department of Labor recently announced a change to the Fair Labor Standards Act (FLSA) that will make over a million more American workers now eligible for overtime pay. Business owners should be aware of this new rule, which goes into effect on January 1, 2020.

The new rule changes the earnings threshold necessary to qualify for the executive, administrative, or professional employee exemptions under the FLSA’s minimum wage and overtime pay requirements, as well as the annual compensation level required to qualify as a highly compensated employee. The current salary levels were set in 2004 and the update accounts for growth in employee earnings since then.

The new rule will raise the “standard salary level” from $455 per week, to $684 per week, which equals $35,568 per year. This means that employees earning less than $35,568 a year will be entitled to overtime pay if they work over 40 hours a week. However, the rule will allow employers to use nondiscretionary bonuses and incentive payments, paid at least annually, to satisfy up to 10% of the standard salary level. Additionally, the rule will raise the total annual compensation level for “highly compensated employees” from $100,000 to $107,432 per year. Under this change, employees will not be exempt from overtime and minimum wage rules as “highly compensated employees,” unless their total annual compensation is at least $107,432. Lastly, the rule will revise the special salary levels for workers in U.S. territories and in the motion picture industry.

What Should Employers Do?

Employers must make sure they evaluate all employee classifications under the new rule. The rule’s updated salary standards may require some employees to be reclassified, which may result in previously exempt employees being reclassified as non-exempt as of January 1, 2020. Specifically, those employees who earn more than $455 per week, but less than $684 per week, will likely need to be reclassified as non-exempt, and will now be entitled to overtime pay. If you would rather these employees remain exempt employees, their salaries will need to be increased to meet the new salary requirement of $684 per week.

Once you decide whether to reclassify employees or increase their salaries so they remain exempt, communicate these changes to the affected employees. Additionally, if previously exempt employees will be reclassified as non-exempt, they may need training on any new requirements they will face, such as timekeeping procedures.

Any changes made to be compliant with the new rules must be in effect as of January 1, 2020.

For guidance regarding how this legislation affects your business and how to maintain compliance with the new rules, contact the employment law experts at General Counsel, PC today at 703-293-5162.