Federal and State Overtime Rules: Rates and Requirements Employers Need to Know

The US Department of Labor's latest overtime rule went into effect January 1, 2020, and extended overtime pay eligibility to roughly 1.3 million more employees by increasing the minimum salary threshold from $455 per week to $684 per week.

As an employer, you should have a solid understanding of federal and state overtime rules, as well as a method to maintain compliance. 

If you don't have an HR manager to stay on top of overtime changes (it's okay— many small businesses don't), here is a breakdown of the current rule and a few ways you can make it work for your business.  

What is the overtime rule?

Most businesses are subject to the FLSA guidelines; however, some states cover employees not eligible under FLSA or have unique rules for overtime calculations. 

Federal Law

Employers must pay eligible employees 1.5 times their standard pay rate when working more than 40 hours in a week.

State Laws

Some states have additional requirements for working more than 8 hours in a day or 7 days in a row— and California exceeds all states with double overtime pay for certain scenarios.

Overtime Laws by State (updated June 2021)

Who is eligible for overtime?

Eligible employees must be at least 18 years old (16 or older if they are legally allowed to leave school for work), employed in a non-executive, non-administrative, or non-professional role, and does not exceed the minimum salary threshold. 

What is the minimum salary threshold?

As of January 1, 2020, the threshold increased from $455 per week to $684 per week. That makes employees earning $35,568 per year or less eligible for overtime pay.

Good news for employers: non-discretionary bonuses and incentive payments (including commissions) can satisfy up to 10% of the salary amount if paid on a regular basis (annual or more frequently).

Who is exempt from overtime?

In addition from exceeding the minimum salary threshold, there is also the duties test that determines eligibility. The test states that an employee is exempt from receiving overtime pay if their job duties fall under one of the following categories:

Executive
Managing the enterprise, a permanent department, or subdivision of the business.

Administrative
Office or non-manual work related to management or general operations of the business.

Professional
Learned professionals: advanced knowledge and regular exercise of discretion and judgment

Examples: lawyers, doctors, dentists

Creative professionals: invention, imagination, or talent in a creative or artistic field

Examples: actors, composers, writers

Computer employee
Systems analysis techniques, design, and development of software systems or computer machines, or similarly skilled work.

How can my company comply with the 2020 salary threshold?

For starters, evaluate your current employees' salaries and duties to determine if anyone qualifies for overtime under the new rule. If you find you have employees eligible for overtime, you will need to update their employment details in your payroll system. Most systems give the option to designate an employee type of 'salaried exempt' or 'salaried non-exempt.'

There are a few alternative options as well— You may consider bumping an eligible employee's salary above the threshold (exempting them from overtime), hiring more employees to spread the workload or rescheduling employees.

Depending on your company's compensation structure, these alternatives might be a more cost-effective option.