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New Federal Overtime Rule Effective in 2020

Jobs that are governed by the federal Fair Labor Standards Act are considered to be either exempt from the law's overtime rules or nonexempt. Nonexempt employees can receive overtime pay. Effective January 1, 2020, $35,568 per year, or $684 per week was set as the new threshold for exemption from the overtime pay rules.

The Fair Labor Standards Act, the same law that sets the federal minimum wage, indicates that nonexempt employees who work more than 40 hours in a work week must receive overtime pay equal to at least 1 ½ times their regular hourly pay. Previously, an exemption to this was available only for those employees who make $23,660 per year, or $455 per week. The Department of Labor estimated that more than 1 million employees nationwide would become eligible for overtime under the new rule.

The salary threshold is one part of the process of defining employees as exempt from overtime pay rules. Section 213(a)(1) of the FLSA indicates that exemptions apply to "any employee employed in a bona fide executive, administrative, or professional capacity." The Department of Labor has in the past established tests to apply to both an employee's compensation and duties to determine whether a so-called "white-collar" exemption exists.

Employers need to review what employees fall below the threshold and who therefore may become entitled to overtime as nonexempt employees. When an employee is nonexempt for overtime, the number of hours the employee works per week must be tracked. For those employees who are now below the threshold, be sure to understand how their duties could affect their status as nonexempt employees and their eligibility for overtime. Once the impacts are understood, employers are in a better position to know what kind of budget changes or job structure changes they may need to make. They will also need plans for managing the number of overtime hours that newly nonexempt employees may incur.

The Department of Labor's website offers guidance documents to help employers determine if an employee is exempt or nonexempt. The information available on the site also helps to explain other critical details about overtime. For example, the FLSA does not limit the number of overtime hours that can be paid. It also does not call for extra pay for weekend, night or holiday work, but only for work weeks of more than 40 hours for nonexempt employees.

The FLSA also has specific rules governing compensation for volunteer firefighters. Learn more.