For employers managing an hourly, distributed workforce, the recent ruling on salary cutoffs and overtime pay may hit hard. This new rule is expected to reclassify an estimated 1.3 million workers to nonexempt status and raise their pay above the previous threshold-and that may include many of your managers.
Employees making less than $35,568 are now eligible for overtime pay under the U.S. Department of Labor’s (DOL) final ruling, made this past September. The new rate is set to take effect on January 1, 2020.
To be exempt from overtime under the federal Fair Labor Standards Act (FLSA), employees must pass the “salary basis test,” “salary level test,” and “duties test.” If they are paid less than the threshold amount or fail to meet the requirements laid out by the tests, they must be paid 1.5 times the hourly rate once they’ve surpassed 40 hours each week. If your workers are exempt, these tests will quickly determine the level of changes you’re going to have to make to your operations—or your budget.
So, how many of your employees qualify?
How to Determine Which of Your Employees Are Exempt
As published on the Department of Labor’s website, to qualify for an exemption from overtime exemptions, employees must:
- Be salaried, meaning that they are paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed (the “salary basis test”)
- Be paid at least a specified weekly salary level, which is $684 per week (the equivalent of $35,568 annually for a full-year worker) under this final rule (the “salary level test”)
- Primarily perform executive, administrative, or professional duties, as defined in the Department’s regulations (the “duties test”).
Other Key Features of This Ruling
Employers should be aware of other key parts of the proposed rule, especially as they pertain to overall budget changes for the company as a whole:
- Bonuses and incentives: employers will be permitted to include in threshold calculations certain nondiscretionary bonuses (such as those tied to productivity and profitability) and incentive payments (such as commissions), up to 10 percent of an employee’s salary.
- Catch-up payments: this would permit employers to make a final “catch-up” payment within one pay period after the end of each 52-week period to bring an employee’s compensation up to the required level.
It is extremely important to prepare for these changes, as failure to comply can result in liability for unpaid wages and incorrect overtime in full. In addition, the Department of Labor can impose ‘liquidated damages,’ which effectively double the amount of overtime pay, plus civil penalties up to $1,100 for each violation.
How to Ensure Threshold Compliance
The best way to prepare for these changes is to start identifying the affected jobs and employees within your business now. You may also consider looking at market wage rates to apply to those individuals who are affected by the new threshold. This helps support any potential salary changes that need to be made. Ensuring a stable budget and even payout before the enforcement date will help you work out any kinks without the risk of having to pay non-compliance fees for early mistakes. It will also help your employees adjust to any changes made to their schedule and pay as well.
How EPAY Can Help
Whether you're managing a workforce spread over many states or you're just looking for a compliance safety net for overtime and salary changes, EPAY's powerful Time & Labor solution offers flexible pay rules, customizable reporting, real time alerts, and built-in compliance safeguards to make human capital management and payroll compliance as easy and accurate as possible.
Our time clocks and additional cloud-based time collection methods offer overtime tracking and alerts, so you can reallocate hours and avoid unnecessary cost and employee burnout wherever possible. In addition, you’ll be able to send text and email alerts to managers to maintain clear communication about last minute changes, shift switches, and hourly signoffs.