New Federal OT Regulation Changes Announced: How Employers Should Prepare

The anticipated amendments to the so-called “white collar” exemptions to the federal overtime regulations were finally issued by the Department of Labor (DOL) on September 24, 2019.  The effective date of the new amendments is January 1, 2020.

The primary change is a substantial increase to the threshold amount of money that employees must earn in a year before they can be considered exempt from the overtime requirements under the executive, professional, and administrative exemptions to the overtime rules. Specifically, the new rule increases the annual threshold salary requirement from $23,660 to $35,568. Incentive payments (including commissions) and non-discretionary bonuses can be used to satisfy up to 10 percent of the new salary threshold, provided that such payments and bonuses are made on an annual or more frequent basis.

The new rule increases the weekly salary level to $684 ($35,568 annualized) from $455 ($23,660 annualized). Interestingly, the changes do not revise the substantive “duties” tests which also must be satisfied in order for an employee to fall within one or more of the “white collar” (i.e., executive, professional, or administrative) exemptions.

The new rules also increase the threshold amount of the “highly compensated” exemption to the overtime rules from $100,000 to $107,432 (of which $684 must be paid weekly in salary or on a fee basis) annually. The practical purpose of the new rules is to significantly increase the number of individuals eligible for overtime pay. The Department of Labor estimates that the new rule will make 1.3 million workers eligible for overtime pay.

Employers should begin preparing now for the changes to the overtime regulations. In this regard, employers should consider the following:

  1. Carefully review the job positions and job descriptions of their current employees to determine whether they are being properly characterized as exempt. This undertaking should be done under the guidance and direction of outside employment counsel in order to better ensure that the characterizations are being properly made, particularly in light of the significant consequences of mischaracterization.
  2. Analyze which of their employees are currently considered exempt who are earning less than the new salary threshold of $35,568.00.
  3. For employees presently earning slightly less than the $35,568.00 threshold, consider whether it makes sense to increase their salary above the $35,568.00 threshold so that these individuals would be eligible for exemption from the overtime rules if they satisfy one or more of the substantive “duties” tests.
  4. In circumstances where previously exempt employees will now be considered non-exempt, decide whether to place limits on the number hours that these individuals can work and, if so, the nature and extent of these limitations. The imposition of limitations on hours that individuals can work will not only have financial consequence to individuals, but will likely have an impact upon employee morale.
  5. If a decision is made to limit the number of hours that a (new) non-exempt employee can work, then a decision also needs to be made regarding whether and to what extent to reassign certain work duties to other employees.
  6. The availability of overtime pay for employees not previously eligible to receive it should prompt consideration of hiring additional employees to reduce the likelihood that any employee will need to work overtime.
  7. The extent to which increased overtime obligations will impact the employer’s financial ability to fund other company benefits.
  8. The manner in which to communicate to employees that their status has been changed from exempt to nonexempt.
  9. Exploring insurance coverage for overtime claims.

Unfortunately, the new overtime rules do nothing to address the significant confusion that the overtime rules currently engender. The new rules will likely add to the confusion and spawn a new generation of overtime claims. Employers that plan now for the overtime changes scheduled to take effect on January 1, 2020 will be better prepared to deal with the legal, financial, and management issues that will accompany these changes.

Marc Engel is an employment attorney experienced in providing successful strategies for managing employees and preventing employment claims. For more information, contact Marc at 301-657-0184 or [email protected].