FLSA Updates Finalized – Salary Threshold, Overtime Changes Coming in 2020

On September 24th, the DOL issued a final ruling on “Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees.” Finally, the salary threshold changes are coming. The summary from the ruling reads as follows:

The Department of Labor is updating and revising the regulations issued under the Fair Labor Standards Act implementing the exemptions from minimum wage and overtime pay requirements for executive, administrative, professional, outside sales, and computer employees.

This new ruling goes into effect on January 1, 2020.

When the DOL first proposed changes under the Obama administration back in 2015, employers reacted with concerns about how this may affect their costs of doing business if substantial groups of employees were to become eligible for overtime wages. Many employers began to work frantically to update their compensation policies and went so far as to actually begin adjusting employee wages. Then, just before they were to originally go into effect, the DOL pulled the changes and went back to the drawing board.

What's changing?

The new final ruling seems to mirror the most recent proposal issued in March of this year. As outlined by the American Payroll Association in an update sent to members, the new rule:

• Raises the salary threshold to $684 a week or $35,568 a year (up from $455 a week or $23,660 a year). This translates to a salary threshold of $1,368 for employees paid on a biweekly basis, $1,482 for employees paid on a semimonthly basis, and $2,964 for employees paid monthly. The rule sets the standard salary level at the 20th percentile of earnings of full-time salaried workers in the lowest-wage region (the South) and/or in the retail industry nationally.
• Raises the total annual compensation requirement for highly compensated employees (HCEs) to $107,432 (up from $100,000 per year). The rule sets the total annual compensation level at the 80th percentile of full-time salaried workers nationally. As part of an exempt HCE’s annual compensation, the employee must receive at least the new standard salary amount of $684 per week on a salary or fee basis (without regard to the payment of non-discretionary bonuses and incentive payments).
• Allows employers to use non-discretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level, in recognition of evolving pay practices. Employers must pay exempt employees 90% of the standard salary level ($615.60 per week), and if at the end of the 52-week period the salary paid plus the additional payments do not equal the standard salary level for 52 weeks ($35,568), the employer would have one pay period to make up for the shortfall (up to 10% of the standard salary level, $3,556.80).
• Revises the special salary levels for workers in U.S. territories. The rule sets the salary threshold at $455 per week in Puerto Rico, the Virgin Islands, Guam, and the Commonwealth of the Northern Mariana Islands. In American Samoa, the salary threshold is set at $380 per week.
• Revises the special salary level for workers in the motion picture industry. The special weekly base rate for the motion picture industry increases to $1,043 per week (or a proportionate amount based on the number of days worked).

The new ruling does not contain two of the more contentious provisions:

• Changes to the job duties test
• Automatic updates to the salary threshold amounts

What do these changes mean for payroll?

In the end, the impact of this new rule is likely much lower than we in the payroll community initially anticipated. The new salary thresholds are lower than many state-mandated thresholds, like New York’s limit which is set at $58,500 for exempt executive and administrative employees. Also, without the automatic update, any future increases will have to go through the standard notice and comment process for rule-making.

Integrity Data has been following this topic for quite some time:

• August 13, 2019 - Update on FLSA Proposed Overtime Ruling
• June 4, 2019 - Overtime Changes – What’s it Mean for Employers?
• February 7, 2019 - Overtime Regulations – Will We Be Seeing Changes Soon?
• May 16, 2016 - Small Businesses Need to Prepare for Upcoming Overtime Rules Changes
• May 9, 2016 - Businesses Need to Focus on Overtime Rule Legislation
• April 5, 2016 - New Overtime Rules – How to Safeguard Your Budget
• August 31, 2015 - Know Your Options and Make Contingency Plans for Proposed Overtime Rule

For employers with specific challenges around overtime compliance, it’s important to remember that Dynamics GP payroll includes the ability to calculate the regular rate of pay to ensure the overtime premium is properly calculated. In addition, Integrity Data’s Overtime Hours Rules can ensure you are paying out the correct number of hours, even in complex states like California that require overtime and/or double-time pay for:

• More than 8 hours in a day
• More than 40 hours in a workweek
• Hours on the 7th consecutive working day

We are your partner in payroll and HR compliance. Reach out to us for help with overtime rules, or any area of HR/payroll compliance.

Written by Tom Franz, Director of Client Services - Integrity Data