Starting January 1st, 2020, the labor department will officially expand the number of workers who will be eligible for overtime pay, signaling the first such rule update in 15 years. This will make 1.3 million workers eligible for overtime pay under the Fair Labor Standards Act (FLSA). Is your business prepared? Use the following fact sheet to determine how you might be affected and what you can do.

Here’s what’s changing:

The current law expiring in January, says most workers who make $23,660 per year (or $455 a week) are entitled to overtime pay. The new law updates this minimum salary threshold to $35,568 (or $684 a week)
The total annual compensation level for “highly compensated employees (HCE)” will be raised from the currently-enforced level of $100,000 to $107,432 per year;
The new law also allows employers to use nondiscretionary bonuses and incentive payments (such as commissions) to satisfy up to 10% of the standard salary level

Source: U.S. Department of Labor

How to prepare your business for 2020’s new overtime regulations

Ensure that any employees making between $23,660 and $35,568 a year are paid overtime for work in excess of 40 hours – no matter what job duties they perform.
Ensure that employees making more than $35,568/year qualify as salary exempt. Important note: Meeting the salary threshold is not enough to classify a worker as exempt; their duties must meet specific FSLA “executive, administrative, or professional” criteria. Job descriptions should be closely examined to ensure they are consistent with these criteria.
Examine how you classify employees and determine who is currently eligible for overtime and who will be under the new law.

Source: ADP

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Some scenarios your business should consider…

If you have employees close to the new threshold, you have some options – all of which should be carefully considered. Every employee should be fairly compensated for their time, but incorrectly classifying certain employees could easily lead to ballooning overtime costs that cut sharply into your bottom line.

First, familiarize yourself with the law directly from the department of labor with this official fact sheet and these frequently asked questions about the new 2020 overtime laws.

Do any of these scenarios sound like your business?

Your time tracking system doesn't integrate with payroll

If you’re tracking time manually, it might be time to upgrade. New salary thresholds mean more employees qualify for overtime – opening up the possibility of costly errors.

If you’re a member with benefits from Savings4Members, your ADP discounts can easily and economically provide the oversight and tracking that can save you big. Access your benefits here.

You have employees close but still below the new threshold

Businesses should carefully study overtime trends and consider raising the salary of these particular employees in order to keep them as exempt

You have non-exempt and newly non-exempt employees

Businesses may choose to either limit or eliminate overtime. For newly non-exempt employees, a prudent choice would be to set clear expectations and carefully track work-time.

You have employees still well below the exemption threshold

for these employees, the most economical approach could be to allow occasional overtime

You have a large number of employees that use overtime

Do you reduce your hourly rate or hire more part-time employees? Some businesses might make the decision to reduce their hourly rate to keep weekly compensation the same when overtime is added. However, this is a choice that should be made very carefully so as not to risk turnover. Other businesses may choose to rely more heavily on part-time workers to help reduce overtime expenditures.

Looking for an easy way to understand the Department of Labor’s new regulations? Follow this helpful chart created by Vox.

Why the change?

In essence, these federal labor laws exist to protect Americans from working too many extra hours without getting paid for them. The last time the federal government updated the minimum salary threshold was in 2004. Since then, wages have (naturally) changed considerably.

While it’s widely agreed that salary threshold laws were due for an update, this change marks the end of a longstanding debate about who should be exempt. In 2014, the Obama administration introduced proposals for similar updates, except for a larger pool of workers earning up to $47,000. This ultimately failed – making January’s updates long-overdue and less widespread. Considering this new rule change was proposed by the Trump administration and backed with bi-partisan agreement that an update was necessary, it is unlikely that the updated laws will be delayed by a democratic challenge.