Changes in Overtime Exemption Laws Effective January 1, 2020
Generally speaking, the Fair Labor Standards Act (“FLSA”) requires employers to pay employees at time and a half for all hours worked in excess of forty (40) in a workweek. However, employees are exempt from the overtime requirements if they meet certain duties tests and/or are paid minimum salary amounts. The Department of Labor (DOL) issued a final rule that makes changes to the salary requirements of the FLSA’s overtime exemptions. Key changes, which go into effect on January 1, 2020, include the following:
Raising the minimum weekly salary amounts from $455 to $684 per week
Raising the total annual compensation for highly compensated individuals from $100,000 to $107,432 per year
Allowing employers to use certain nondiscretionary bonuses and incentive payments to satisfy up to ten percent (10%) of the standard salary level
This will be the first change to the FLSA salary levels since 2004. The weekly salary amount was previously set to increase to $913 per week in 2016 pursuant to an Obama-era final rule. However, that final rule was enjoined, and later invalidated, by the U.S. District Court for the Eastern District of Texas.
Currently, Michigan employers are in compliance with state overtime laws so long as they comply with federal law. However, Governor Whitmer recently announced that the state Department of Labor and Economic Opportunity will draft and implement a rule requiring overtime to be paid to employees who make less than $51,000 per year. A $51,000 salary threshold would be $980.77 per week, which is more than the new FLSA weekly salary amount. If these changes are implemented, Michigan employers will be required to pay overtime to more workers than would be required under the federal FLSA.
As 2019 draws to a close, employers should take this opportunity to evaluate their pay practices and confirm that their overtime policies will remain compliant with federal law in 2020. Additionally, employers should continue to monitor any changes to state overtime laws, in case they differ from the FLSA.