With the new federal overtime rules that went into effect on January 1, 2020, approximately 1.3 million American workers became eligible for overtime pay for the first time. Specifically, the annual salary threshold increased from $23,660 or $455 per week to $35,568 or $684 per week. That means some employees previously exempt from overtime pay no longer will be under the new rules and must receive overtime pay for any hours worked over 40 in one week.
Other Changes to Be Aware of with the New Overtime Rule
In addition to the requirement that employers pay overtime to employees earning nearly $12,000 more, the Department of Labor (DOL) has also instituted the following changes:
- Employers may now use incentive payments, non-discretionary bonuses, and commissions paid annually or more often to satisfy as much as 10 percent of the employee’s standard level of pay as it relates to evolving practices for paying employees.
- Increases the threshold for highly compensated employees from $100,000 to $107,432 annually. Additionally, the Internal Revenue Service (IRS) considers a highly compensated employee one who had more than a five percent ownership stake in the company over the previous year, had a salary in the top 20 percent of all employees, and earned more than $130,000 for 2020 or $125,000 for 2019 or earlier.
- Changes in salary levels for certain employees in the motion picture industry and for those who live and work in territories owned by the United States.
To qualify as exempt from overtime pay, an employee must meet all three of the following criteria:
- Have a salaried position
- Regularly complete administrative, executive, and professional duties as part of their job
- Earn at least $35,568 per year
Options for Working with the New Overtime Rules
You have several options if you have employees newly eligible for overtime pay who were not eligible in the past. For example, it might be more beneficial for you to raise the annual salary of workers near the cutoff if they regularly work overtime hours.
You can also limit the amount of overtime hours both exempt and non-exempt employees can work. Exempt employees are those who meet the criteria listed above while non-exempt are those who receive an hourly salary, including overtime pay. However, you will need to plan this carefully to ensure that you can continue to meet all business needs without your staff regularly working overtime. The last choice you have is to simply pay the overtime hours after carefully including them in your business budget.
The Fair Labor Standards Act (FLSA) is Very Complex
The above only touches on the many changes that the DOL instituted with the FLSA on January 1 of this year. If the changes affect your business, we invite you to schedule a consultation with Capital Business Strategies to learn more about these new regulations. Your small business consultant will assist you with minimizing financial output while still ensuring that your company can meet its production goals.