This past September, the Department of Labor issued its 2019 Final Rule on overtime which will have far-reaching impacts on businesses of all sizes, as well as costly consequences should businesses fail to adhere to new regulations.

David Nagle, of Jackson Lewis P.C., recently spoke to members during an educational workshop regarding the upcoming change and how it might affect them. Now is an excellent time to conduct a wage and hour compliance audit, including a review of the salary basis compensation and duties for each exempt position. Below is a quick primer on what businesses can expect once the rule takes effect on January 1, 2020.

What does it say?

The new overtime ruling has four primary changes:

  1. The minimum salary requirement for exempt employees has been raised to $35,568 annually / $684 per week. This requirement was previously $23,660 annually / $455 per week.
  2. The minimum salary level for the Highly Compensated Employee (HCE) has been raised to $107,432 annually or $2,066 per week. This level was previously $100,000 annually and $1,923.08 per week.
  3. Employers are permitted to utilize incentive compensation to meet part of salary requirements for non-HCEs. 10% catch-up may be paid on an annual basis or more frequently. This is a change from the previous rule that stipulated it be paid quarterly. This 10% rule does not apply to HCEs
  4. There will not be automatic increases to the salary levels. The previously proposed rule would have automatically increased the salary levels every three years.

When does this take effect?

The new overtime rule will take effect on January 1, 2020 so it is important businesses are prepared.

What are businesses’ options?

  • Increase salary level for affected employees and retain exempt status – assuming employees satisfy duties test.
  • Reclassify impacted personnel as non-exempt and overtime-eligible, and pay overtime.
    • Employers could reclassify as non-exempt and adjust the hourly rate to account for anticipated overtime so that the reclassification is cost-neutral.
    • Or, reclassify employees and use fluctuating workweek method of pay (where allowed by state law).Reduce hours to avoid overtime and transfer the additional work to other workers.
  • Hire more part-time workers.

What are some alternatives for businesses rather than just absorbing the cost?

  • Reduce variable compensation
  • Reduce fringe benefits
  • Reduce pay and/or provide slower and smaller wage increases for non-exempt employees
  • Delay promotions

What are some of the potential difficulties in responding to these changes?

  • Recording time
  • Loss of flexibility
  • Decrease in employee morale
  • Overtime estimates are not reliable
  • Potential for increase in costs
  • May require hiring additional workers
  • Changes will need to be communicated to personnel

What if a business needs more help?

Contact David Nagle, Jackson Lewis P.C. or 804.648.4077.