In late September, the Wage and Hour Division of the U.S. Department of Labor finally finalized the updated overtime rules for employers. The rule takes effect on January 1, 2020 and employees who are in exempt positions will need to earn at least $35,568. Additionally, they will also still need to pass the duties test definitions with the salary level. Information on the new overtime rule can be found here: US Department of Labor
Estimates show that the new rule will make roughly 1.3 million additional employees eligible for overtime compensation. Obviously, business owners will need to look at their employees and determine the best course of action for their business? Is it better to raise the salary of a currently exempt employee, which would impact their budget? Alternatively, they can turn that exempt employee into an hourly employee, which may impact morale.
If you determine the employee needs to move from an exempt position to an hourly position, it is important you have the conversation with the employee that this move is not a reflection of their work. Keep communication lines open with the employee. When this rule was in process in 2016, we did see some employers take proactive steps to change employees from exempt to non-exempt status and if not explained correctly, morale did suffer.
While there hasn’t been a change in the duties test, this is where small businesses are most at risk of facing federal problems. Generally speaking small business owners either don’t know about the duties test, or they ignore them. While dated, I still like the explanation that SHRM has provided on a great explanation of what duties may qualify an employee for exempt status. (SHRM) This is sometimes the forgotten aspect of exempt employees, yet it is critical. With the new rule taking effect in January, now is a great time to review all of your exempt positions and determine if those individuals qualify under both the duties test and the salary level. If you aren’t sure if a position should be exempt, please consult with an employment attorney.
I believe this rule is better than the one posted in 2016. I think the salary level is more reasonable and it shouldn’t have as large of an impact on the small business community like the previous rule did. Additionally, the last time the salary exemption was updated was in 2004, so it was time. I do wish there could be a mechanism in the rule that definitively updated salary rates going forward. Giving business owners a schedule and certainty is helpful.
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