Overtime rules are often confusing to understand and even harder to implement. And on January 1, 2020, salary overtime gets even more interesting… 

The Department of Labor (DOL) announced a new overtime rule in March 2019 and many employers are feeling its impact today. According to the DOP, the new overtime rules will make around 1.3 million workers newly eligible for overtime pay.

If you haven’t already made changes to comply with the new overtime rules, you better start now to avoid serious penalties or lawsuits. In this blog, we highlight what the rules are and what changes you need to make as soon as possible. 

What’s in the new overtime rules

There are a number of changes in the new federal overtime law by the Fair Labor Standards Act (FLSA) and we will break it all down one-by-one. 

Minimum salary to be exempt from overtime pay is $646 per week, or $35,568 per year

Before the new overtime rules, the salary threshold exemption was $23,660 per year, or $455 per week.

The new threshold will change the pay for some of your employees dramatically as the change in the threshold change can make many previously exempt employees newly nonexempt. 

Exempt employees are not eligible for overtime however, the new overtime rule and more employees becoming nonexempt does mean this: more employees are eligible for overtime pay. 

An employee is exempt if they meet all three qualifications below: 

  • Are paid on a salary basis
  • Earn at least the FLSA salary threshold of $35,568 annually (from 2020)
  • Have executive, administrative, and professional job role duties.

A non-exempt employee is usually paid by the hour, and not on salary. Plus, anyone who is working more than 40 hours each week should already receive time and one-half of their regular pay rate for every hour of overtime worked.

non-exmempt vs exempt employees

Annual compensation requirement for highly compensated employees is raised to $107,432 per year

Originally, the number was $100,000. 

The FLSA considers a worker to be a highly compensated employee if they meet all three qualifications below: 

  • Earns $107,432 or more per year 
  • Performs office or non-manual work
  • Regularly performs at least one of the job duties of an exempt executive, administrative, or professional employee.

In addition to the FLSA, the IRS also has its own definition of a highly compensated employee. According to the IRS, a highly compensated employee is an individual who meets one of the below requirements:

  • Owned more than 5% of the interest in a business at any time during the year or preceding year
  • Received compensation from the business of more than $125,000 in the preceding year (if the preceding year is 2019, $130,000 if the preceding year is 2020), and was in the top 20% of employees when ranked by compensation (if the employer chooses to rank)

Rules for highly compensated employees were put in place to prevent discrimination between high- and low-wage workers (e.g., 401(k) rules). With the highly compensated employee rules, employees who fall into this group won’t have an unfair advantage when it comes to retirement plans and other benefits. 

Haven’t you already made changes to comply with overtime rules?

Tracking your employees’ hours, managing overtime, and executing payroll effectively are easily done with Connecteam’s time tracking app.

Employers can use nondiscretionary bonus compensation and incentive payments to pay up to 10% of the new exempt salary threshold.

As a result of this new overtime rule, employers are able to make a final “catch-up” payment within a single pay period after the end of year in order to bring an employee’s compensation up to the required level. 

For example, if an employer pursues this option then at each pay period the employer is required to pay the employee at least 90% of the salary level ($615.60 per week). Therefore, if at the end of the year, the employee’s paid-out salary plus the nondiscretionary bonuses and incentive payments (including commissions) does not amount to at least $35,568, the employer will need to have one pay period to make this up. 

Future increases.

The DOL has also committed to making future adjustments to the salary thresholds, but these changes aren’t going to be automatic. Instead, they will be made on an as-needed-basis and via the rule-making process.

The new overtime rules have not impacted all parts of overtime.

new overtime rules went into effect on January 2020
Photo by Aidan Bartos on Unsplash

For example:

  • Overtime protections for the following are not changed
    • Police officers
    • Fire fighters
    • Paramedics
    • Nurses
    • Laborers including: non-management production-line employees
    • Non-management employees in maintenance, construction and similar occupations like carpenters, electricians, mechanics, plumbers, operating engineers, longshoremen, and other construction workers.
  • The job duties test is not changing.

Get your business up to date

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If you haven’t already updated your company’s overtime policies then do so as soon as possible to avoid further penalties or potential lawsuits. The following should serve as a starting point, we highly recommend talking with your legal team to ensure total compliance.

Businesses must have a time and attendance solution.

Investing in a time and attendance solution so it’s easier for your employees to track their hours worked is a must in 2020. Everyone has a mobile phone these days and time tracking solutions are taking notice. When it’s easy for your team to track their hours, everyone is happy. One, employees know their payroll will be accurate. And two, you know that your overtime rules and time tracking rules are being followed. 

With Connecteam’s time tracking solution, you can stay up to date on your employee’s hours worked on jobs, projects, customers or anything else needed. Connecteam’s time clock is easy to use, easy to implement and packs everything you need to avoid buddy-punching and time theft, improve time management, comply with labor law and make payroll processes faster and more efficient; GPS location stamps with maps display and geofencing employee tracking; tags and shift attachments; automated breaks; overtime and double time; automated push notifications and reminders, and more. Also, it’s super easy to export timesheets to Connecteam’s QuickBooks Online and Gusto integration for 100% accurate payroll.

#1 Time Tracking App

Everything you need to track your employees’ hours, manage overtime and execute payroll effectively is easily done with Connecteam’s time tracking app. In the click of a button, you can set everything up so your employees can easily stay on top of their work and don’t have to worry about errors or manually adding their hours. Starting for free now is a no-brainer.

Timekeeping training is a must

Reclassifying some of your employees will require you to comply with the new salary overtime rules so you need to make sure that you have systems in place to accurately record all work hours. 

FLSA states that hours worked includes time spent working, rest breaks, travel time, and training time. Your exempt employees may not be used to tracking this time so it’s vital that you train them on your timekeeping policies and procedures. Make it clear to all employees that they’re required to record all working time. 

Check your exempt employees’ salaries

When examining your exempt employees, if they’re earning at least $35,568 per year then you’re all good. However, for the exempt employees who earn less than $35,568, you have a few options: increase salaries, limit overtime, or pay overtime wages. 

  • Increase salaries: If it makes financial sense then give both exempt and nonexempt employees pay raises. This will allow you to close the wage gap and avoid wage violations. Plus, the obvious, increases employee happiness. 
  • Limit overtime: You have the option to limit the number of overtime hours newly nonexempt employees are allowed to work. You probably know that overtime wages can quickly add up so if your plan is to cap overtime, or even ban it, then you need to let your employees know as soon as possible. 
  • Pay overtime wages: You are required by federal overtime law to pay any newly nonexempt employees overtime wages if they are earning less than $35,568 annually. Overtime is set at time and a half (or 1.5 times) the employee’s regular rate of pay for any hours that they work over 40 during the workweek. 

Discuss salary overtime changes with your employees.

Once you are aware of what overtime rules you’ll be making then be sure to communicate this to any employees who will be impacted as early as possible. In addition, check your state law to see if there are any specific timeframes for providing such notice. All this allows for a smooth transition. 

If this is the first time you’ve heard of these new overtime rules, don’t worry. We’ve highlighted the big changes and have shown you what to do to make the changes needed. Additionally, make sure you consult with your legal team to ensure total compliance. 

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