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Have You Looked At Your Payroll? U.S. Department of Labor’s New Overtime Rule Took Effect Jan. 1st

Updated: Feb 18



By | Michael G. Swansburg, Jr.


On September 27, 2019, more than 15 years after its last revision (not including the proposal invalidated by a U.S. Court of Appeals in 2017), the U.S. Department of Labor (“DOL”) published its Final Rule updating the standards for overtime compensation in the United States. That Final Rule thereafter went into effect January 1, 2020.


To the extent employers might be unfamiliar with the dictates of the new overtime standards, here are the basics:


(1) First, all employees covered by the federal Fair Labor Standards Act are eligible to be paid at a rate not less than one and one-half their regular rate of pay for any hours worked in excess of 40 during a workweek unless they are exempt.


(2) Second, to qualify as exempt (i.e., ineligible to receive overtime pay) under the new Final Rule, an employee must: (a) be salaried, which means he or she is paid a pre-determined and fixed amount; (b) be paid a weekly salary level of at least $684/week (or roughly $35,568/year for a full-time employee); and (c) primarily perform “executive,” “administrative,” or “professional” duties as defined by DOL regulation.


(3) Third, “highly compensated employees” who earn more than $107,432/year and regularly perform any one or more of the exempt duties or responsibilities of an “executive,” “administrative,” or “professional” employee also are exempt from the overtime requirement under the new Final Rule.


(4) And, finally, nondiscretionary bonuses and incentive payments (e.g., bonuses for meeting production goals or commissions based on a fixed formula) may be used to satisfy up to 10% of the standard salary and special salary levels. So, for example, an employee making $650/week (approx. 95% of the $684/week threshold) or $33,800/year ($650/week x 52 weeks) is eligible for overtime. However, if that employee makes a nondiscretionary bonus of $2,000 in December, pushing her annual compensation to $35,800, or $232 more than the threshold, and she performs “executive,” “administrative,” or “professional” duties, she may be exempt from the overtime requirement.


Of course, whether a particular employee is eligible now for overtime protection turns on individual facts and circumstances that may require thoughtful analysis. The more immediate question for employers is whether they have begun the process of updating their payrolls to ensure compliance with, and to avoid liability under, these new standards.

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