September 30, 2019
On January 1, 2020, an estimated 1.3 million more U.S. workers will become eligible for overtime pay. Just last month, the Department of Labor (DOL) ruled to raise the minimum salary threshold for determining an employee’s overtime status by a whopping 50%. Currently, employees earning less than $23,660 annually are eligible for overtime pay, but beginning in the new year, this threshold will jump to $35,568. This shift will compel employers to review their pay scales and reevaluate their existing employee makeup, and more importantly, they must learn to juggle the new costs associated with this new rule.
The Fair Labor Standards Act requires organizations to pay their salaried employees time-and-a-half pay for any hours worked over 40 in a given week. One exception to this rule is known as the “white-collar” exception.
The white-collar exception exempts employers from paying overtime when their employees meet two conditions:
On September 24th, the DOL raised this threshold from $455 to $684 per week ($23,660 to $35,568 annually) to be effective in the new year. This 50% increase is certainly noteworthy, but this rule is an improvement from the version the DOL attempted to pass three years ago.
In early 2016, the DOL passed a similar ruling that changed the white-collar exemption threshold from $455 per week to $913 per week – a 100% increase. This new threshold was set to go into effect on December 1, 2016, and was estimated to impact over $4 million U.S. workers
In response to this significant increase, organizations and state governments filed lawsuits against the DOL citing that the Department exceeded its authority when making this change. The lawsuits were consolidated and seen by the U.S. District Court in November 2016, just before the implementation deadline. While the case was being litigated, the threshold change sat in limbo, and almost a year later, the District Court Judge ruled against the DOL. The overtime threshold stayed put at $455 per week. …until now.
Beginning with the first pay period that includes January 1, 2020, salaried employees are eligible for overtime pay at one-and-a-half times their normal salary if they get paid less than $684/week and perform “white-collar” duties.
Additionally, employees who do not meet the “white-collar” duty requirement will be exempted from the overtime requirements if their salaries exceed $107,432 (up from $100,000). This is known as the “highly compensated employee” exception.
Employers with exempt workers who make between $455 and $684 per week will need to review the DOL’s ruling carefully. If they hope to avoid paying overtime to these workers, they have three options:
Similarly, employers need to either (1) give raises to their highly compensated employees to exceed the $107,432 threshold, or (2) give them year-end bonuses to bump their total compensation above that threshold.
If you cannot afford to make those salary changes, you can implement a policy that allows employees to flex their schedules within the workweek. For example, if you need weekend coverage, let your employees take time off earlier in the week to compensate for that extra time spent at work. This will reduce your overtime costs but give you staffing power when you need it most.
Just keep in mind that the overtime pay is only one of the costs associated with this rule. If you have nonexempt employees, you will need to implement systems to track their overtime. Reviewing and approving timesheets will take time, and you will also likely see an uptick in your payroll preparation costs.
Employers who have lower-paid workers like nonprofits, restaurants, and retailers will be most affected by this rule change, and unfortunately, there may be no simple solution. Consult with a Wilson Lewis advisor to help identify options and solutions for your Georgia company. If you have questions about the change ir need assistance with an accounting, audit or tax issue, Wilson Lewis can help! For additional information call us at 770-476-1004, or click here to contact us. We look forward to speaking with you soon.