What Are The New Overtime Rules?

December 18, 2019

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In this episode of The Bottom Line, Jane Romanowski, from ADP, and Tim Schuster discuss the new overtime rules.

Jane Romanowski can be reached at jane.romanowski@adp.com


Transcript

Tim Schuster:Hello and welcome to a special edition of “The Bottom Line.” This podcast examines the everyday business and finance issues faced by closely held and private businesses. We hope to provide you with news you can use in what we like to think of as a jargon free zone. To our listeners of this podcast series, I'm throwing you, yet again, another curve ball. I am your host, Tim Schuster and with us today is a special guest, Jane Romanowski, who is a senior account manager from ADP. Today, we'll discuss with Jane the new overtime rules. Jane, welcome.
Jane Romanowski: Hi, Tim. Thanks for having me.

TS: Oh, it's our pleasure. So Jane, who is subject to these new overtime rules?
JR: The Fair Labor Standards Act or FLSA, requires employers to pay non-exempt employees at least minimum wage for each hour worked as well as overtime pay for all hours worked in excess of 40 hours in a work week. Some states do require overtime pay in additional circumstances, so people should check their local state laws for more information.
TS: Okay. That's interesting. So what is an exempt employee, or better yet, what is the criteria?
JR: That's a great question, Tim. While most employees are classified as non-exempt, the FLSA provides exemptions for minimum wage and overtime requirements for certain employees. Anyone is welcome to contact me for more information, but to be considered exempt, employees must satisfy all three of the following tests, the salary-level test, the salary-basis test and the duties test.
TS:Awesome. So we all know the DOL is our friend, but would you mind summarizing what is changing with these rules?
JR: Sure. So starting January 1, 2020, the minimum salary requirement for administrative professional and executive exemptions will increase from $455 per week to $684 per week or $35,568 per year. This means that in order to qualify for one of the overtime exemptions, your employees must be paid a weekly salary of at least $684 and continue to satisfy the applicable duties test that I was talking about before. Exempt computer employees may also be paid hourly as long as they're getting at least $27.63 per hour, which doesn't change under the new rule.
TS:Awesome. Great.
JR: Employers will also be allowed to use nondiscretionary bonuses, incentive payments and commissions to satisfy up to 10% of their minimum salary requirement for all of these exemptions, as long as these forms of compensation are paid at least annually.
TS:Great.
JR:The final rule also permits them to make a catch-up payment within one pay period after the end of the year to bring the employee's compensation up to the required level.
TS:Awesome.
JR: The final rule also increases the annual compensation requirement for highly compensated employees to $107,432 per year from that $100,000 that it is now.
TS:See that's so funny. I always am curious how they get these numbers per se because they're just so oddly precise, but I digress. Continue.
JR:So what does this all mean for your listeners in a nutshell? If your exempt employees are earning less than the new salary requirement, they're no longer going to meet the minimum criteria to be classified as non-exempt. So this means that if your employees are working more than 40 hours in a work week, you're going to have to reclassify them to an exempt employee. An employee who meets all applicable exemption criteria, including the new minimum salary requirements, salary basis tests and applicable duties test, may continue to be classified as exempt.

It is worth noting however, that some states have their own salary requirements and duties tests that have already exceeded the new federal rule. Some states may decide to increase their salary thresholds based on this new rule as well, so make sure you review both federal and state law for where your business is located to make sure that an employee may be classified as exempt from overtime. If an employee is covered by both federal and state law, but does not meet all of the criteria, consult with your counsel to determine how you should classify your employee.
TS: So needless to say, I believe our takeaway from this whole thing is that these new rules are extremely complicated.
JR: Yes, Tim. They are very complex.
TS: Jane, thank you so much for this useful information. And before we close out our podcast, I'd like to provide one of my famous New Jersey fun facts. Did you know that Cape May County is considered one of the first seaside resorts in America?
JR:Wow, that's interesting.
TS: Right? Thank you for listening to “The Bottom Line” as part of the EisnerAmper podcast series. If you have any questions or there's a topic you'd like us to cover, email us at contact@eisneramper.com. Visit eisneramper.com for more information on this and a host of other topics, and join us for our next EisnerAmper podcast when we get down to business.

About Tim Schuster

Mr. Schuster is a Senior Manager providing tax compliance services to individual filers, as well as assistance on tax returns for companies in the manufacturing and real estate industries.


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