By Phil Harwood

If you haven’t heard, the U.S. Department of Labor issued a “final ruling” to update an outdated rule affecting many employers, including many of us. Since these new rules kick in January 1, 2020, there is limited time to respond and violations are costly.

Beginning January 1, 2020, employees must earn a minimum annual salary of $35,568 ($684 per week) to be exempt from overtime pay under the Fair Labor Standards Act. The current threshold of $23,660 ($455 per week) has been in place since 2004, although there have been previous attempts to increase the threshold and pushback from the business community. 

You may recall that the Obama administration attempted to increase it to $47,476, along with base salary increases every three years. This over-reach was met with strong opposition from the business community and was put to an end by a Federal judge who ruled that the Department of Labor exceeded its rule-making authority. 

In issuing this less drastic increase, Trump’s Department of Labor believes that it is less likely to be challenged this time around. Patrick Pizzella, acting U.S. Secretary of Labor, said, “This rule brings a common-sense approach that offers consistency and certainty for employers, as well as clarity and prosperity for American workers.” Cheryl Stanton, Wage and Hour division administrator for the DOL, said the rule is “a thoughtful product informed by public comment, listening sessions and long standing calculations.”

Employers have a short window of time to review their current employee pay structures to be in compliance as of January 1, 2020. A fact sheet, created by the DOL, is available to employers at https://www.dol.gov/whd/overtime/fs17g_salary.htm. 

The salary threshold is one of several tests to determine whether employees quality for the exemption. Employers are encouraged to seek legal counsel to  fully understand the various tests, including the duties test for executive, administrative, professional, sales, and other positions. Under the Fair  Labor Standards Act, employees have up to three years after the fact to challenge how their employers classified them. 

A common mistake is to change an employee from hourly to salary where the employee does not meet the duties test even though they meet the salary threshold test. In determining the duties test, titles do not matter. For example, an operations manager should be paid hourly plus overtime over 40 hours if their job duties do not meet the requirements of the duties test. A “working manager” often will not meet these requirements.

With this rule change, it is a great time to review your positions, job duties, and compensation programs to ensure you are in compliance. 

Now go forth.