New Overtime Rules in 2020
The new decade brings a long-awaited change to the federal overtime rules under the federal Fair Labor Standards Act ("FLSA"). Under the final rule an estimated 1.3 million workers across the country will become newly eligible for overtime pay effective January 1, 2020.
How the Overtime Rules Changed
Under the old rules, employees were exempt from overtime if they met all of the following criteria:
(i) They were paid on a salary basis.
(ii) They earned at least $455 per week, or a little over $23,000 per year.
(iii) They performed duties considered “exempt” under overtime law.
The “salary basis” and “exempt duties” requirement has not changed. The major change is to the salary threshold to be exempt from overtime, which has risen from $455 a week to $684 a week.
Where previously anyone making over $23,660 annually could qualify as exempt, starting January 1 if they earn less that $35,568 a year they cannot be exempt from overtime even if they meet the other tests.
The second change allows an employer to bring employees up to the minimum salary level through non-discretionary bonuses and incentive payments. This will count toward the threshold so long as those payments do not represent more than 10% of the employee’s salary.
Why the New Overtime Rules Are Important
Previously, virtually every employee in Massachusetts met the salary minimum to be considered exempt from overtime. This is because $455 per week for a 40 hour week is less than $12 per hour, the minimum wage in Massachusetts in 2019.
The new minimum salary level is the equivalent of a little over $17 per hour. This means there are many workers in Massachusetts earned enough to be exempt from overtime in 2019 but will not by January 1, 2020. If they are earning less than the minimum amount, these employees must be paid overtime for hours worked over 40 in a workweek no matter what their salary arrangement and no matter what kind of job they do for your company.
Why the Old Overtime Rules Still Matter
The duties test under federal and state law has not changed. Even if your employees are salaried and even if they make the minimum salary, they may or may not be exempt from overtime.
The list of specific exemptions under Department of Labor regulations is lengthy, but in broad strokes someone is exempt if they are a licensed professional, executive, or high level administrative employee. If you are in doubt about your employees’ duties and whether they are exempt, it is important to consult a lawyer because the lines are not always clear between “exempt” and “non-exempt” duties.
The True Cost of Overtime Misclassification
If an employee files a lawsuit claiming they should have been paid time and a half for overtime hours and wins, you could be liable for t two or three times the unpaid amounts, as well as both your legal fees and your employee's attorneys' fees. This can literally transform saving $500 in overtime pay into a five figure expense for your business. So it is important that you understand the rules- old and new- and how they could affect you and your business.
What Business Owners Can Do
The very first thing as we enter 2020 is to review the pay for everyone who works more than 40 hours a week in your business. If their regular salary is less than $684 per week, without doing any further overtime analysis, you already know that you will have to either increase their base salary (or catch them up with non-discretionary bonuses or incentive pay), find a way to control whether and when they are working more than 40 hours a week, or resign yourself to paying time and a half for hours worked over 40.
The change in rules is also a good opportunity to take a look at all employees who work more than 40 hours a week, even if they meet the salary threshold. Applying the law on exemptions to employees can be very fact-specific, and we find a lot of employers get this wrong.
Finally, you can use one time payments to bring people up to the required minimum salary. Because this rule is so new, there is little guidance on how it will be interpreted, but typically a “non-discretionary bonus” is something that is tied to an objective metric- commissions, or specific amounts paid out when a person, team or department meets certain milestones in the business. This may enable you to bring employees up to the minimum amount at some point during the year when your cash flow permits.
How We Can Help
We can help you navigate these issues and get clarity on your rights and obligations as an employer or an employee. You can use the button below to schedule a call back from a member of our team, give us a call at 781-784-2322, or fill out our web form to let us know a little more about your situation.