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Knowledge Center Items New DOL Overtime Threshold Highlights Need for Compliance, EPLI Coverage

New DOL Overtime Threshold Highlights Need for Compliance, EPLI Coverage

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The Department of Labor (DOL) will make an additional 1.3 million Americans set to qualify for overtime pay effective January 1, 2020. In its revised ruling, the annual salary threshold under which workers generally qualify for time-and-a-half pay for logging more than 40 hours a week will go from $23,600 to $35,568. The revised rule affects workers and employers in all industries, but will potentially have the greatest impact on the retail, fast food, higher education and nonprofit sectors.

“America’s workers will have an update to overtime regulations that will put overtime pay into the pockets of more than a million working Americans,” acting Labor Secretary Patrick Pizzella said.

The rule would boost the salary threshold to $684 per week. Retail-clothing employees, according to the Wall Street Journal, made an average $485 per week in July, and restaurant workers earned an average $387 per week in the same month. The threshold could also affect home health-care workers, who had average weekly earnings of $579 in July.

There are many U.S. businesses that pay overtime to hourly workers but often exempt managers and other salaried employees from additional pay when they work more than 40 hours a week. The DOL sets a salary threshold, below which in most cases a worker must be paid time-and-half regardless of their role. This threshold hadn’t been adjusted since 2004.

The new ruling also allows employers to use nondiscretionary bonuses and incentive payments (including commissions) that are paid at least annually to satisfy up to 10 percent of the standard salary level, in recognition of evolving pay practices.

With this new ruling, employers should begin to analyze their salary-exempt workforce in consideration of the new threshold, to ensure they pay overtime in compliance with the changes.  Also, employers need to make sure their employees are properly classified with respect to the exemption categories. Note: Penalties and sanctions for non-compliance with the Fair Labor Standards Act (FLSA) are severe and aren’t a risk worth taking. In addition to the back payment of lost wages to all affected employees, willful violators may be prosecuted criminally and fined up to $10,000, according to the DOL. Employers with repeated violations may be subject to fines of $1,100 per incident. A second conviction of violating the FLSA can even result in imprisonment.

Along with compliance, it’s important for employers to look at their need for Employment Practices Liability Insurance (EPLI). EPLI provides coverage for wrongful acts arising from the employment process. Typical claims include wrongful termination, discrimination, sexual harassment, and retaliation. In addition, the policies cover claims from a variety of other types of inappropriate workplace conduct, including (but not limited to) defamation, invasion of privacy, failure to promote, deprivation of a career opportunity, and negligent evaluation. Some EPLI policies can be designed to include an endorsement to cover Wage and Hour claims. The endorsement provides coverage for the cost of defending claims alleging that an employer failed to pay overtime to a nonexempt employee—that is, an employee who is not exempt from, and therefore eligible to receive, overtime pay under the FLSA. However, this coverage may not be available for a specific employer, depending on the industry and employee count. The specialists at RPS can review with you whether your insured’s risk would be eligible for EPLI that also includes Wage and Hour defense coverage.

Sources: WSJ, DOL

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