On January 1, 2020, the new federal overtime rule takes effect. Other than in states with already-higher minimum salaries for exemption (which include California and, for certain types of employees, New York), employers will be required to pay most executive, administrative, and professional employees at least $684 per week ($35,568 per year). Are you ready for this change?

  • Have you prepared a list of potentially affected employees?
  • Have you compared the cost of increasing their salaries to the new minimum with the cost of keeping their salaries where they are and paying for overtime?
  • If you raise their salaries to the new minimum, have you considered whether you still have a “duties test” risk?
  • In states where it matters, will you take advantage of your right under the new rule to use bonuses, commissions, or other incentive compensation as a credit toward the new salary threshold?
  • If you reclassify employees to overtime-eligible, are your supervisors ready to manage the attendant overtime costs? Do they understand what kinds of hours are considered “hours worked” (e.g., certain travel time, time spent working from home or remotely, etc.)?
  • Have you considered the alternatives to paying reclassified employees on an hourly basis?
  • Do you understand what kinds of compensation will have to be included in the “regular rate of pay” for overtime purposes?

For employers in New York and California, the preparation will be more limited. New York already has minimum salaries for exempt executive and administrative employees well in excess of the new federal minimum (e.g., $1,125 per week for most employers in New York City). So the federal rules—including the ability to credit bonuses, commissions, and incentive pay to the minimum salary for exemption—won’t matter for those employees. New York has no minimum salary for exempt professional employees, however, so New York employers should determine whether any of their exempt professionals are earning less than the new federal minimum.

In California, exempt executive, administrative, and professional employees must earn a monthly salary of no less than twice the state minimum wage for full-time employment (currently, for all but small employers, $4,160 per month, or $49,920 annually)—well in excess of the new federal minimum.

From a planning standpoint, January 1 is around the corner. It’s time to figure out what the new federal overtime means to your business.