What Employers Need to Know About New Overtime Rules

Written by QBS President David Evette

Published in GSA Business Report 10/28/2019 

After more than two years of discussion and debate, new United States Department of Labor (DOL) regulations governing the mandatory payment of overtime for certain exempt white-collar employees are set to go into effect on January 1, 2020.

These regulations require a complete transformation in the way many companies do business, assign duties and approach hiring and payroll management, yet many companies in South Carolina and across the country are struggling to keep pace.

Regulatory History

The DOL’s Fair Labor Standards Act requires that employees earn a minimum wage as well as overtime pay for hours worked over 40 in a week, but it also provides that employees who perform certain job duties may be exempt from these requirements. Under the previous rules, only workers earning $23,660 or less automatically qualify for overtime. Salaried workers who fall above that limit were eligible for overtime pay provided they do not fall under the so-called “EAP exemption,” which applies to workers classified as executives, administrators or professionals.

Dating back to the Obama administration, the DOL proposed new regulations that would raise the minimum salary threshold under which employees must be given paid overtime regardless of whether an employee is classified as managerial or professional. The administration argued that this was designed to be more fair to employees since this would be the first time the salary level had been raised since 1975, when the threshold of $23,660 salary covered 61 percent of workers. It also announced a new duties test to prevent the misclassification of workers as managers to help companies avoid the payment of overtime. The DOL estimated that this proposed rule would extend overtime protections to approximately 4.2 million workers, including an estimated 156,000 workers in South Carolina, who were not eligible at that time under federal law.

Ultimately, the proposed regulations were postponed, providing more time for companies to weigh in on the impact and to prepare for any proposed changes.

What’s changing?

Under the new regulation, salaried exempt, administrative and professional employees (EAPs) must be paid at least $684 per week on a salary basis (an increase from the current minimum of $455 per week) to exempt them from mandatory overtime payment. This is the equivalent of $35,568 per year. Up to 10% of this minimum may come from non-discretionary bonuses, incentive payments, and commissions (collectively, “incentive pay”), so long as these payments are received on at least an annual basis.

If an employee does not earn enough incentive pay to meet the minimum by the end of the year, the employer has two options: pay the difference with a “catchup” payment within one pay period after the end of the 52-week year or retroactively remove the exemption and pay the employee for any overtime worked during that same year.

The new regulations also establish a duties test to determine employee exempt or nonexempt classification, with limited exceptions. In addition to salary requirements, to claim the EAP exemption that applies to workers classified as executives, administrators or professionals, the following tests must also be met:

Executive exemption:

The employee’s primary duty must be managing the enterprise, or managing a customarily recognized department or subdivision of the enterprise…

Continue reading the full article by clicking here to view a PDF of the published “Viewpoint” feature from GSA Business Report on October 28th, 2019.