There are Changes to the New Overtime Rule. On September 24, 2019, the Department of Labor announced the new overtime rule which goes into effect January 1, 2020. This will be the first time in 15 years that the salary cutoff has been increased and we can probably expect more in the future.
Currently, the changes to the new overtime rule splits employees into two categories, those who are exempt and those who are not. Exempt employees are those who are exempt from overtime when working more than 40 hours a week due to their compensation and responsibilities. Nonexempt employees must be paid overtime for any hours worked over 40.
The new overtime rule is raising the thresholds for weekly and annual salaries making 1.3 million American workers eligible for overtime pay. It is also making employers face big questions on whether to change the way they compensate and/or classify their employees.
Changes to the rule:
- The “standard salary level” increases from $455 to $684 per week ($35,568 per year for a full-year worker)
- Total annual compensation for “highly compensated employees” increases from $100,000 to $107,432 per year.
- Employers will be allowed to use nondiscretionary bonuses and incentive payments (including commissions) paid at least annually to satisfy up to 10% of the standard salary level
- Revisions to the special salary levels for workers in U.S. territories and in the motion picture industry.
Put simply, if your employees earn less than $684 weekly or $35,568 annually, they will be paid overtime starting January 1, 2020. Non-compliance is not an option. Exemptions have not changed and still stand. This means managers, professionals in the field of science or learning, and many others are exempt from overtime pay as long as the salary thresholds are met.
How This Affects Your Office
If you haven’t already, it is important to start looking at your employees’ salaries to determine if this will affect you and assess the impact it will have on your company. Pay close attention to anyone who earns less than or close to $35,548 because they will be eligible for overtime on January 1. When the New Year arrives, they will need to track their hours and receive overtime for any time worked over 40 hours. These individuals will also need an hourly rate calculated to help determine what their overtime pay will be. This can be calculated by dividing their annual salary by 2,080 (40 hours a week x 52 weeks in a year).
Alternatively, you may want to sit down with your employees to discuss an arrangement that works for both of you. Some items to consider may be the following:
- Scheduling employees to ensure overtime hours are not incurred
- Hire more employees to lighten the load off those who frequently work overtime
- Increase salaries of certain employees to exceed the new threshold, which could be a less expensive alternative
- Cut costs elsewhere to budget for overtime pay
Employers have a lot to think about with the new overtime rule if they have employees on the brink of being exempt. Be sure to communicate all changes to your employees and notify your accountant of any changes in payroll. January is coming soon, are you ready?
For more information on exemptions click here https://www.dol.gov/whd/overtime/fs17a_overview.htm. For further reading on the new overtime rule visit the Department of Labor’s fact sheet here https://www.dol.gov/whd/overtime2019/overtime_FS.htm.
To read more from SME CPAs visit our blog at https://www.smecpa.com/blog/
by Darian Betosky
Darian is a recent graduate from Augusta University and works as a staff accountant at Serotta Maddocks Evans, CPAs. She has completed the requirements and will begin studying for her CPA exam in the near future. She finds building client relationships and learning new things to be the most rewarding part of the job. In her free time, she enjoys spending time with family, being outdoors, and cooking.