The Act’s Facts

Effective 1/1/2020, the Fair Labor Standards Act (FLSA) is updating the exemption rule for overtime eligibility. The last time they made a change was in 2004 and estimates project over 1.3 million employees will become eligible for overtime pay. So, just what are the new thresholds for exempt and non-exempt employees:

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  • Employees earning at least $684 a week, or $35,568 per year, will be exempt from overtime pay for any hours worked over 40 in one work week. Previously, the threshold was $23,660 per year.
  • The total annual compensation level required for “highly compensated employees” has increased from $100,000 to $107,432.

Planning for 2020

Here we are at the end for 2019 and most likely ready to take on 2020. Have you considered these new thresholds? It may be the eleventh hour, but there is still time to evaluate your employees and just who will and won’t be eligible for overtime starting on January 1, 2020. As a general rule of thumb, to be exempt from overtime pay, your employees must not only earn more than the thresholds outlined in the exemption rule, but also be classified as executive, administrative, or professional. Common examples of exemptions to the new rule are doctors, attorneys, teachers, and outside sales employees.

Our Approach’s Impact

As part of our Risk Reduction Plan, we work with clients to be sure that we identify areas of risk that may present organizational challenges or unwanted exposure. I’ll throw this bit of Risk Management advice out for free – now is the time to look at your workforce and determine who is exempt and non-exempt. Of course, I’m not an attorney so now might also be a great time to run the new changes in the exemptions rule past an employment law attorney to get clarification for your specific needs.

With changes in labor laws that stretch over a workforce of over 1.3 million employees, your organization may not be able to transfer this risk. Over 75% of lawsuits for Wage and Hour claims are in excess of $1,000,000. Some estimates indicate that as many as 70% of companies are in violation of the exemption rules. If those statistics aren’t scary enough, there has been a 400% increase in collective actions since 2000.

Insurance Coverages That Offer Protection

This employment related risk definitely screams of the need of an Employment Practices Liability (EPL) Policy. A standard EPL policy will provide coverage for sexual harassment claims, discrimination claims, wrongful termination claims, and more. Only 24% of businesses with 500-700 employees have an EPL policy. Employers with more than 1,000 employees? Just 40%. I would strongly suggest you don’t get caught on the wrong side of this statistic and instead be sure you have purchased an EPL policy.

To complicate it, not all EPL policies are the same. The forms differ. Carriers have proprietary language. So, with all these changes to the overtime exemption rule, how can you be sure that you are protected? Here are some steps to get you started:

  • Adopt a policy of prevention
    • Be prepared and determine who in your workforce is exempt and who is non-exempt
    • Create and implement an effective plan that addresses all areas of employer/employee risk
  • Talk with your employment attorney
  • Take a closer look at your EPL policy
    • Make sure the policy contemplates Wage and Hour claims
    • Make sure you have a policy!

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