What You Need to Know: The 2020 Overtime Rule


On January 1, 2020, the Department of Labor's final overtime rule became law-making over 1 million more Americans eligible for overtime pay. But for many business owners, the new overtime law means a hike in employment costs, depending on what type of workers employed.

The Department of Labor originally planned for the new rule to go into effect in 2016, but it was challenged and stayed by a court order a few weeks before it could go into effect. While the new rule increases "white collar" exemption rates, the gains are smaller than initially planed in 2016.

Here are the critical changes in the final rule effective January 1, 2020:

  • The “standard salary level” threshold for exempt employees will increase from $455 ($23,600 per year) to $684 per week ($35,568 per year). That means starting January 1; employers will need to pay overtime to employees who earn less than $684 per week ($35,568 per year).

  • Employers can use nondiscretionary bonuses and incentive payments (commissions) that are paid at least annually to meet up to 10% of the standard salary level.

  • The salary threshold for highly compensated employees will increase from $100,000 per year to $107,432 per year. This threshold applies to non-executive, administrative, or professional employees who earn at least $684 per week  and  whose primary duties involve performing office or non-manual work and include at least one of the responsibilities of a manager.

How Does The New Rule Effect Small Businesses?

So, what does this change in more straightforward terms? Employees will have to record their time in detail. For example, if they worked until 11:30 at night preparing for a sales call the next day, they have to clock the hours. If they take a 50-minute lunch, they have to clock it; if they don't - the company violates the new law. If by Thursday an employee reaches 40 hours, they can't work Friday unless the company pays overtime.

Under the new law, small businesses might want to consider not allowing flextime and hold employees to a set schedule for more straightforward tracking purposes.

With the Fair Labor Standards Act, some things can be skirted around with negotiation, but with the new regulations, employers can't just negotiate with employees. However, there is a workaround - if an employee regularly works overtime and is close to the $35, 568 thresholds, a company can consider a raise. The salary increase may be cheaper than paying overtime hours.

What Should a Small Business Do?

A company should revisit its timekeeping policy to ensure accurate records is a good idea if reclassifying employees, as newly appointed non-exempt employees, may not be used to tracking hours and may not record them accurately.

Whatever implementations are made, its best to put them into effect now as it's still early in the year. Make sure to communicate changes with the impacted employees as soon as possible. Change is inevitable, and its best to move forward with a solid action plan intact.