The Final Overtime Rule – How It Will Affect Your Business

Originally posted on September 30, 2019, updated on October 25, 2019, content adapted from newly proposed PA overtime regulation:

Pennsylvania’s proposed overtime regulations

Close on the heels of the DOL’s announcement, which is discussed in the blog below, the Pennsylvania Department of Labor & Industry announced a final regulation to update its overtime rules. This regulation will ultimately be more onerous than that of DOL’s overtime rule as it provides for a larger increase than that of the DOL to be phased in over three steps: $684 per week, $35,568 annually, on Jan. 1, 2020; $780 per week, $40,560 annually in 2021; and $875 per week, $45,500 annually in 2022. It is estimated that this will extend overtime eligibility to 143,000 workers in three years. The final regulation in Pennsylvania still needs to be approved by the Independent Regulatory Review Commission before it takes effect.

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On September 24, 2019, the U.S Department of Labor announced the final rule on employee eligibility for overtime pay under the Fair Labor Standards Act (FLSA).  The final rule goes into effect on January 1, 2020.

Salary threshold requirements

The final rule updates the salary threshold requirement for the classification of executive, administrative, or professional employees as exempt from the FLSA’s minimum wage and overtime pay requirements. Specifically, the standard salary level is raised from $455, which was set in 2004, to $684 per week.  This is equivalent to $35,568 per year for a full-year worker.  Also, the total annual compensation level for “highly compensated employees (HCE)” is increased from $100,000 to $107,432 per year.

In addition to the changes to the salary threshold, the final rule allows employers to include a portion of certain bonuses and commissions towards meeting the salary level.  In particular, employers may use non-discretionary bonuses and incentive payments, such as commissions, that are paid at least annually to satisfy up to ten percent of the standard salary level.

It is estimated that the final rule will impact 1.3 million American workers who will become eligible for overtime pay beginning in 2020.

How employers can prepare

In light of this new rule, as we approach 2020, employers need to take a look at the status of each of their now-exempt employees to confirm whether, under the final rule, that designation will still be proper on the first of the year.  If it is not, it will be necessary to reclassify those employees.  The reclassification of employees from exempt to non-exempt in response to the final rule will likely have a corresponding impact on business costs, including payroll.

To minimize the financial burden, employers need to explore the options available to respond to the increased salary threshold.  These options include evaluating whether to pay overtime to these newly non-exempt employees or to raise their salaries in order to meet the new salary threshold.  Also, it will be important to adopt or update policies and procedures focused on the management of the work hours of employees who are now eligible for overtime.

If you have questions on FLSA exemption classifications and the impact of the final rule, contact Loren Speziale, Esquire or a member of our business services group.

Attorney Loren Speziale regularly collaborates with business owners and human resource professionals, providing legal guidance and risk management assistance with regard to personnel issues.