Labor Department Announces New Overtime Exemption Rules
a move that will affect many employers, the U.S. Department of Labor recently announced
a 50% hike in the minimum salary requirement for administrative workers to be exempt
from overtime pay.
Whether workers are exempt from overtime or non-exempt depends, in part, on
their duties. Executive, administrative and professional employees are generally
considered exempt. However, in addition to satisfying the “duties test,” to be
exempt under current rules the employee must be paid a salary of at least $23,660 a year
If the Labor Department's proposed change is enacted as expected in early
2020, the minimum required salary for overtime-exempt employees will increase by
nearly 50%, to $35,308 per year ($679/week), and many employees who
are currently exempt may soon be entitled to overtime pay. The Labor Department
estimates that the increase will make more than a million additional American
workers eligible for overtime.
While the proposed hike is lower than the increase that a
federal judge blocked in 2016, the impact is significant nevertheless.
See also: "Notice
of Proposed Rulemaking: Overtime Update" (U.S. Dept of Labor)
Example. You pay an exempt administrative employee a
$500 weekly salary. In an average week, that employee works 50 hours. Under the
new rules, that employee’s $500 weekly salary will be $179 below the $679 weekly
minimum to qualify for the overtime exemption and would become eligible for
overtime pay. If the employee continues to work
50 hours a week at $12.50/hour ($500 divided by 40 hours), that employee will be
entitled to 10 hours of overtime pay at $18.75/hour, raising their weekly pay to
To prepare for this change,
employers should consider a number of steps.
Determine whether employees treated as exempt, based on their job
description and duties, really are exempt. If they
do not satisfy the duties test, change their status to non-exempt.
If an employee meets the duties test but is not close to the new
salary minimum, consider whether you will raise their pay so they will continue
to be exempt. If the employee does not regularly work more than 40 hours a week,
it may be less expensive to pay overtime rather than increase their pay rate.
For a currently exempt employee who works a lot of hours but whose base
weekly salary is less than $679, determine whether to lower their hourly rate so
that, with overtime, they will continue to earn roughly the current amount.
Be more diligent in limiting overtime and determine
which employees can be capped at 40 hours.
Finally, to avoid excessive overtime for non-exempt positions, consider adding
full- or part-time employees.
Tina Vannucci contributed to
More about Fitzgibbons Law Offices'
legal services for employers