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Complying with the new overtime rules

Are you ready for the changes in federal overtime pay rules?
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Photograph: Shutterstock

The first major changes in federal overtime rules in over 15 years are set to take effect for U.S. businesses on Jan. 1, 2020. Is your restaurant ready?

The rules will make about 1.3 million more people eligible for time-and-a-half pay under the federal Fair Labor Standards Act (FLSA) when they work more than 40 hours in a week, according to the U.S. Department of Labor (DOL).

The increase in workers qualifying for overtime pay comes as the DOL sets a higher salary test for overtime eligibility. Starting Jan. 1, any employee earning under $35,568 a year will automatically be eligible for overtime pay under the FLSA, up from the current threshold of $23,660.

For the first time, the DOL will also permit employers to use nondiscretionary bonuses and incentive payments to satisfy up to 10% of the salary requirement on an annual basis.

Effective Jan. 1, employees who earn above $35,568 a year, are paid on a salary basis and meet certain duties tests are considered exempt from the FLSA’s overtime requirements. The DOL rule does not change the current duties tests for the three categories of exempt employees: executive/managerial, professional and administrative.

The DOL released its new overtime rule in September after months of hearings and public comments, and nearly three years after a federal court rejected an Obama administration regulation as too drastic. The National Restaurant Association, through its Restaurant Law Center, was part of the lawsuit that challenged the Obama rule and has been working hard since then to make sure the new rules are workable for our industry and members.

“We’re pleased that the DOL heard our concerns and provided regulations that are reasonable,” said Shannon Meade, the Association’s vice president of government affairs.

As you prepare for the new overtime rules for 2020, take these steps to properly classify your employees and protect yourself from litigation. We encourage you to seek the help of counsel as needed.

  1. Be aware of state laws. Many states have overtime regulations that differ from the new federal overtime rules. In these cases, employers will have to consider both state and federal regulations and follow whichever provisions provide the most protection for employees. Consult with legal counsel.
     
  2. Check your employees’ salary levels. Starting Jan. 1, 2020, make sure you pay your FLSA-exempt employees at least $684 a week ($35,568 per year) on a salary basis. Beginning in 2020, any employee who earns under $684 a week will be entitled to overtime pay under federal law when they work more than 40 hours in a week, no matter what their duties are.

 

  1. Audit your payroll practices. Exempt employees must be paid on a “salary basis,” which has a specific meaning. If you make partial-day deductions from salaried employees’ pay, for example, you could jeopardize your ability to classify employees as exempt. Establish clear policies on issues such as wage and leave deductions, and how you record and track employee hours. Correct any problems with payroll and wage-deduction practices.

 

  1. Revise job descriptions, and document whether positions are exempt or nonexempt. Make sure job descriptions reflect the actual duties of the job. Document why a job is considered exempt and which exemption (executive/managerial, administrative or professional) applies. Your good-faith efforts to classify positions accurately could protect you during disputes.
     
  2. Communicate! Make sure your payroll specialists, human resources team, managers and supervisors understand the new rules, including what deductions you can make from salaried employees’ wages and what it means to pay employees on a salary basis. Communicate the changes to all your employees—especially those whose status may be changing under the new rules.

 

More compliance resources are available here.

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