DOL Issues Final Overtime Regulations
The Wage and Hour Division of the Department of Labor (DOL) regulates exempt vs. nonexempt status for employees. Regulations were issued in 2016 changing several aspects of this determination. These regulations were challenged in court and ultimately never took effect (see Overtime Rules Thrown Out for Now (Benefit Beat, September 2017).
On September 24, 2019, the DOL released a new set of final regulations, which will take effect on January 1, 2020.
As background, an individual who is non-exempt is entitled to overtime pay for all hours he/she works over 40 in a week. To be exempt, an employee must meet several tests, including:
- A salary basis test wherein the individual is paid a predetermined and fixed salary that is not subject to be reduced as a result of variations in the quality or quantity of work performed;
- A salary level test in which the individual is paid a specified weekly salary level; and
- A duties test wherein the individual primarily performs executive, administrative, or professional duties, as defined in the DOL’s regulations.
The final regulations increase the “salary level test” standard from $455 per week to $684 per week, which is equivalent to $35,568 per year for a full-year worker. While the regulations increase the salary level baseline, they do not, in any way, change the duties test.
In addition to raising the salary level, these regulations allow up to 10% of this amount to be attributable to nondiscretionary bonuses and incentive payments, including commissions. Importantly, it is essential for an employer attributing these funds to make absolutely certain that the minimum floor is being met. The employer has one month after the close of the measurement year (which can be any 52-week period) to make any correction.
In addition, the regulations increase the annual compensation limit for purposes of determining highly compensated employees from $100,000 per year to $107,432 per year.
Notably, these regulations do not include an automatic escalator for salary amounts. The previously issued regulations did include an auto escalator, which was one of the points to which exception was taken.
While it is possible these regulations may be challenged, employers should begin to prepare for the January 1, 2020 effective date.
The Wage & Hour Division has established a webpage for additional information relating to these final rules, including a Fact Sheet, FAQs, and Small Entity Guideline.
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