Businesses Now Required to Pay Overtime for Lower Salaried Employees as of Jan.1, 2020
JOHNS CREEK, GA, February 25, 2020 /24-7PressRelease/ — The U.S. Department of Labor publicized a final rule making 1.3 million American workers eligible for overtime pay under the Fair Labor Standards Act (FLSA). The new overtime rule is now in effect and will not be reversed as it previously was three years ago. It is now more important than ever that businesses make sure they are compliant with this new law. In 2016 a very similar ruling was halted just a few days before it would go into effect on Dec. 1, 2016. The main reason for the halt was the radical movement of the minimum base salary more than doubling. Therefore, the Department of Labor (DOL) reviewed the current law, which had not been updated for decades (although an attempt was made in 2016), asked for input in mid 2019 and announced a final ruling for the new overtime law that was effective Jan. 1, 2020.
Companies need to immediately evaluate the minimum salaries they pay their exempt workers (not qualified for minimum wage or overtime pay) and make a decision to either increase pay or move them to the non-exempt (must be paid for every hour of overtime they work) pay classification if they are below an annual salary of $35,568. In 2019, the threshold for exempt employees was $23,770 annually. However, in January 2020 that new minimum salary increased to $35,568. It’s estimated that over two million employees are affected by this law.
Salary level alone is not the only factor to consider when classifying an employee of an “exempt” status. There are specific written definitions known as the Duties Test to meet as well as the salary threshold.
The Duties Test has six major categories as listed below. A small definition is provided to give perspective to meeting one of these duties along with meeting the salary requirement to qualify a person to be classified as exempt in your organization.
A Short Summary of the Duties Test Criteria:
The employee’s primary duty must be to manage the enterprise, one or more departments, or direct reports. This person must have authorization to hire and fire other employees or give substantial weight if it is a senior level team decision. This person is normally a “C” level or very senior person in the organization.
In this role, the employee’s key duty is to manage one or more direct reports. This person must have authorization to hire and fire other employees or give substantial input if it is a senior level team decision. This position should not do a majority of their work that is performed by non-exempt employees.
An experienced professional must apply work that requires advanced knowledge, is predominately intellectual or creative in nature, and which requires discretion and judgement.
This group of exempt employees’ primary duties must be to perform office or non-manual work directly related to the management or general business operations of the employer or its customers. This classification needs to demonstrate the incumbent’s primary duties including the exercise of discretion and independent judgement. By not merely following a process and making decisions on their own could result in substantial cost to the company.
This defines employees that include computer analysts, computer programmers, software engineers or similarly skilled workers in the computer field that develop, document, analyze, create, test or modify computer systems, programs, prototypes, and design specifications.
This defines those with the primary duty of making sales and obtaining orders, including the development of contracts for services and products (customarily and regularly) and are engaged away from the employer’s place of business in performing this duty.
Once the employee meets both the salary requirement and the Duties Test, the Labor Department states that in most cases (not including outside sales), each pay period an exempt individual regularly receives a predetermined amount of compensation, not subject to reduction because of quality or quantity of the employee’s work. Also, to verify the salary threshold, and qualify the amount in the minimum compensation test, no more than 10% bonus or commission payments can be used in that calculation.
What to Do
The first step is to prepare a report from payroll to determine which employees are classified as exempt, as well which are paid less that the minimum of $35,568 annually. From there, if you have a few individuals that warrant a small annual increase early, they will meet the new standard. Take action immediately to be in compliance with the new law. Those workers who do not come close to the minimum salary requirement, or do not meet the duties test, you will need to re-classify as non-exempt. In order to do that, you need to determine their hourly wage. If the incumbent in the job does not have a history of working overtime (over 40 hours a week) then the typical conversion is dividing their annual salary by 2,080 and that calculates the hourly wage to convert them to. For employees that you have determined to work over 40 hours, add their annual hours of probable overtime to the 2,080 number before you divide by their salary.
Department of Labor employee claims result in hundreds of millions of dollars of fines, penalties and back wage payment for companies that have their employees misclassified. If you’re unaware of how your business must be structured to meet compliance rules and regulations, make it a top priority to ask a professional HR firm, like Flex HR to complete an audit for you.
Take the right steps to confirm your company is compliant with current rules and regulations. For more information, visit Flex HR now.
Flex HR, Inc. is an Atlanta, GA based full service, Human Resources firm, supporting any and all HR management functions. Our comprehensive offering includes high-level strategic consulting and planning, HR back office administration, regulatory compliance, organizational development, benefit solutions, mergers, recruiting, training, payroll, employee websites, ethics hotline and administration, risk management, and human capital consulting and outsourcing, to name a few. Flex HR delivers intelligent HR expertise allowing companies to concentrate on their internal resources to grow their core business.
Human resources is a complex business function. Government regulations, environmental health concerns and workplace safety are among the hot topics companies must address in their employment policies and practices. Flex HR serves almost every industry in all 50 states, including Georgia, Florida, California, North Carolina, and Tennessee, as well as Puerto Rico, the Virgin Islands, Canada and Europe supporting U.S. subsidiaries of foreign owned companies.
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