On the very first day of 2020, a brand new set of rules regarding overtime pay will go into effect for businesses in the United States (at least for those in the primary 50 states). In addition, there will be new pay thresholds for the overtime exemption (the rule that allows employers to skip paying overtime to employees who are considered well-enough compensated).
These rules have been in the works since 2016, and have battled through various political delays to reach the final versions released in September 2019. Overall, the changes are a great thing for employees and more than 1.3 million additional workers will receive overtime pay as a result, but it can be startling for your payroll department.
The current overtime methods have been in place for a long time, and the thresholds haven’t been updated since 2004. Here’s a quick rundown of the changes you can expect.
You May Have to Pay More Employees Overtime
Once the new rules are in place, any employee who makes less than $35,508 a year will be eligible for overtime (up from $23,660 in the previous threshold). This is actually much lower than the original $47,000 threshold proposed in 2016 and was meant to act as a compromise between unions and workers’ rights organizations who wanted a higher threshold and corporate entities pushing for a lower threshold. Largely, in the public eye, it’s seen as a rights issue.
"Workers, community groups and elected officials are all mobilizing around it as a paycheck fairness issue," state policy director at the National Employment Law Project Paul Sonn told NPR. "If you're going to put in those long hours away from your community and your family, you should at least be paid for it."
However, in some states, the locally-mandated threshold is already higher than the new national threshold (such as the $48,500 threshold in New York), so employers will see no noticeable difference in this area.
You Will Be Able to Fund Overtime With Bonuses and Incentives
Another added provision to the new overtime rule allows employers an option to “make up” unpaid salary at the end of the year. Up to 10% of an employee’s salary can be paid with “non-discretionary bonuses and incentives” in order to reach the overtime threshold. Additionally, you’ll have up to one pay period after the end of the year to pay out these incentives, in case the employee hasn’t earned enough to qualify for overtime exemption but hasn’t been paid overtime all year.
You Won’t Have to Update Every Four Years After All
Originally, employers worried about a provision in the 2016 draft of the new FSLA rules that set the exemption threshold to update (and likely rise) every four years. Many employers feared this would mean rapidly rising labor costs. But after deliberation, and receiving comments from the public, The Department of Labor rewrote the rules to mandate that they are updated by congress based on economic conditions “from time to time.”
You Won’t Want to Risk It
Bear in mind, this is not an area you want to play fast and loose with the rules. Violating Department of Labor procedure can get you in serious trouble both through employee lawsuits and via criminal prosecution from the DOL itself.
If it’s proven that you were knowingly violating overtime rules, you could be prosecuted and fined up to $10,000 -- and more than one conviction could land you in prison. The law also can demand you pay back any wages due to employees who were shorted. In the long run, you won’t save any money by cutting corners on the overtime rules.
The new overtime rules can seem overwhelming. Why not let the experts handle it for you? At Complete Payroll, we’re here to help. Contact us today to schedule a consultation.