On September 24, 2019, and December 12, 2019, the U.S. Department of Labor announced a final rule to make 1.3 million American workers newly eligible for overtime pay and an updated definition of overtime. This is the first time in more than 50 years that the DOL has updated the FLSA definition of the regular rate of pay. Here’s how the new laws will impact employers.
The final rule updates the earnings thresholds necessary to exempt executive, administrative and professional employees from the Fair Labor Standards Act’s (FLSA) minimum wage and overtime pay requirements, and allows employers to count a portion of certain bonuses/commissions towards meeting the salary level. The new thresholds account for growth in employee earnings since the thresholds were last updated in 2004.
In the final rule, the Department is:
- raising the “standard salary level” from the currently enforced level of $455 per week to $684 per week (equivalent to $35,568 per year for a full-year worker);
- raising the total annual compensation requirement for “highly compensated employees” from the currently enforced level of $100,000 per year to $107,432 per year;
- allowing employers to use nondiscretionary 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; and
- revising the special salary levels for workers in U.S. territories and the motion picture industry.
The Final Rule is Effective on January 1, 2020.
The New Definition of a Regularly Rate of Pay for Overtime Purposes.
Employers now have more clarity and flexibility about which perks they can include in workers’ “regular rate” of pay, which is used to calculate overtime premiums under the Fair Labor Standards Act (FLSA). The U.S. Department of Labor (DOL) announced a final rule that will take effect Jan. 15, 2020.
Paying Overtime Premiums
Under the FLSA, nonexempt employees generally must be paid 1.5 times their regular rate of pay for all hours worked beyond 40 in a week. But the regular rate includes more than just an employee’s base hourly wage. Employers must consider “all remuneration for employment paid to, or on behalf of, the employee,” except for specific categories that are excluded from the calculation, such as:
- Discretionary bonuses.
- Payments made when no work is performed, such as vacation or holiday pay.
- Gifts.
- Irrevocable benefits payments.
- Payments for traveling expenses.
- Premium payments for work performed outside an employee’s regular work hours.
- Extra compensation paid according to a private agreement or collective bargaining.
- Income derived from grants or options.