Overtime Exemption Rule Regulations Announced

Written by Kristen O’Connell, CPP

On Tuesday, September 24, 2019, the US Department of Labor (DOL) announced the final regulations on the overtime exemption rule.

Effective January 1, 2020, the minimum salary threshold for overtime eligibility will increase to $35,568 per year ($684.00 per week). The new threshold is a compromise between the proposed $47,476 level by the Obama administration in 2016 and the current $23,660 level that has been in place since 2004. Unlike the proposed rule by the Obama administration, the final ruling does not include automatic increases to the threshold. This will allow the DOL to re-evaluate the rule as needed and make any necessary adjustments as seen fit. The rule does allow employers to include non-discretionary bonus amounts, incentives, and commissions up to 10% of the employee’s salary level, so long as they are paid to employees on an annual basis. The DOL estimates that more than a million workers will be affected by the new rule – either being reclassified as non-exempt employees or receiving a pay increase in order to meet the new threshold. Data from the Department of Labor suggests that the construction, retail, and food service industries will be the most largely affected by the new regulations.

Also impacted are “highly compensated employees” The new rule also raises that threshold from the current level of $100,000 to $107,432. In order to be exempt as a highly compensated employee, the following must be met:

• Employee earns total annual compensation of $107,432 or more, which includes at least $684* per week paid on a salary or fee basis.
• Employee’s primary duty includes performing office or non-manual work.
• Employee customarily and regularly performs at least one of the exempt duties or responsibilities of an exempt executive, administrative or professional employee.

Keep in mind that Pennsylvania law does not recognize the “highly compensated employee” as a valid exemption; therefore, Pennsylvania employers may not use this as grounds to deny an employee overtime pay.

In order to ensure compliance by 2020, employers are encouraged to take immediate action by reviewing the following:

• Impacted employees should be identified and evaluated for potential reclassification.
• Internal audits should be completed to review employees’ job duties and job descriptions. Verify that the job being performed and the skills necessary are accurately reflected.
• Determine how impending changes will be communicated to employees.
• Estimate time needed to implement the changes to the payroll and timekeeping systems.
• Anticipate the impacts and costs of the change.
• Determine competitiveness of pay.

The new regulations will increase the potential for non-compliance and changes will likely take more time than employers anticipate so the sooner these practices are reviewed, the better.

For more information or assistance with the Overtime Exemption Rule, please contact us at 717-569-2900.