The new year means new overtime rules. It is essential to plan for these. Otherwise, you could find yourself short-staffed in the coming year. Or worse, you could end up on the wrong side of the compliance line. Government entities estimate that these new rules will affect close to 1.3 million workers, most of whom work in small and medium-sized enterprises. This change means there is a reasonably good chance that these new rules will affect your business.

The Minimum Salary for Minimum Wage is Going up

Starting January 1, 2020, the threshold for exemption from overtime pay will rise to $684 per week. This increase is equivalent to $35,568 per year for a full-time employee. However, that doesn’t mean that all employees are eligible for an exemption.

The Fair Labor Standards Act still allows exemptions for employees with a minimum salary if they fall into one of the following four categories:

  • Managers. The rules define managers as those who have direct authority over two or more individuals.
  • Professionals. Physicians, lawyers, CPA’s, and sole proprietors who have independent authority over their work.
  • Administrative Professionals. The new rule applies to HR professionals, financial advisors, and IT administrators. It does not include administrative assistants, secretaries, and other administrative staff.
  • Sales Professionals. Specifically, outside sales. It does not include those who work in call-centers and other “inside” sales facilities.

Is Your Business Prepared?

You need to conduct a full audit of your employee eligibility for overtime under the new rules. You will also need to calculate their hourly rate. Start by dividing the individual’s annual salary by 2,080 to arrive at their hourly rate. For those eligible for overtime under the new rules, you will need to pay them at a rate that is 1.5 times their base pay rate for any hours over 40 worked during the week.

You will need to strengthen your internal accounting of the hours each employee works. It is vital to calculate arrivals, departures, lunch breaks, etc. accurately to ensure that overtime-eligible employees are not working more than 40 hours per week.

It is vital to plan for staffing needs. This means determining whether you will grant time off for workers who reach the 40-hour threshold in a given week. Conversely, you may decide to pay overtime if doing so would leave you short-handed and negatively impact your operations and ability to service the needs of customers or clients. For some businesses, this may mean hiring additional staff or adjusting your budget to cover the extra expense of overtime pay.

Beware the Fly in the Ointment

Think you are compliant because you adhere to the rules under the FLSA? Think again. States such as California have a higher minimum salary exemption threshold. Starting January 1, 2020, California’s minimum limit is $49,920 for enterprises with fewer than 25 employees. It is $54,080 for enterprises with more than 25 employees. Thus, while you would be compliant with federal law, you could still run afoul of state law. It’s a simple oversight that you don’t want to make, so be sure to confirm the specific threshold that applies within your state.

Additional Rule Changes

The total annual compensation for highly compensated employees will rise from $100,000 to $107,432 on January 1. Employers can also utilize non-discretionary bonuses and incentive compensation, including commissions, to satisfy up to 10% of the standard salary level.

Contact Greenlink Payroll at (480) 385-2525 for more information about the overtime rules your business must adhere to in 2020. It’s our pleasure to answer your questions and help ensure you remain compliant with state and federal employment laws.