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New Overtime Rule Will Go Into Effect on January 1, 2020

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The U.S. Department of Labor (DOL) has issued a final rule that it says will make 1.3 million more American workers eligible for overtime pay under the Fair Labor Standards Act (FLSA).

The rule goes into effect on January 1, 2020. Tax-exempt organizations are not excluded and should begin planning for this change now. Even if your organization isn’t covered by the FLSA, your employees may be covered as individuals and thus eligible for overtime.

The DOL had originally planned for a new rule to go into effect in December 2016, but it was stayed by a court order a few weeks beforehand. While the final rule increases white collar exemption salary rates, the increases are smaller than in the 2016 version of the rule.

Here are the key changes in the final rule effective January 1, 2020:

  • The “standard salary level” threshold for white-collar exempt employees will increase from $455 ($23,600 per year) to $684 per week ($35,568 per year). That means starting January 1, employers will need to pay overtime to employees who earn less than $684 per week ($35,568 per year).
  • Employers can use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to meet up to 10% of the standard salary level.
  • The salary threshold for highly compensated employees (HCEs) will increase from $100,000 per year to $107,432 per year. This threshold applies to non-executive, administrative, or professional (EAP) employees (i.e., white collar employees) who earn at least $684 per week and whose primary duties involve performing office or non-manual work and include at least one of the duties of an EAP employee (e.g., directing the work of two or more employees). The duties test did not change from the current rule.
  • There is a special salary rate for workers in U.S. territories:
    • $380 per week for American Samoa
    • $455 per week for Puerto Rico, the U.S. Virgin Islands, Guam, and the Commonwealth of the Northern Mariana Islands
  • There also is a special “base rate” threshold of $1,043 per week for employees in the motion picture industry.

More information about the final rule is available on the DOL website.

We can assist you in determining your best course of action for minimizing the negative repercussions associated with the new salary-level test if the FLSA applies. Please contact us with questions or to learn more.

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