November 4, 2016 – What You Need to Know About the New Federal Overtime Rules
This past May, the US Department of Labor released its final rule on the overtime exemption threshold, travel pay, and minimum wage under the Fair Labor Standards Act (FLSA). The new regulations take effect on Dec. 1, 2016.
Of the estimated 4.2 million salaried workers that may become entitled to overtime pay, businesses must respond by either converting their employees to non-exempt, overtime-eligible status or by raising their employees’ salaries above the new thresh-old. Employers may also choose to keep an employee salary as-is and pay overtime as it occurs or hire part-time or temporary workers as a potential method for mitigating the total number of overtime hours worked by non-exempt staff.
The rule change will effectively double the minimum weekly salary employees must be paid to be considered exempt from federal overtime requirements. The threshold for a “salaried-exempt” employee increases from $455/week to $913/week (i.e., $47,476 per year). This means that, going forward, employees who earn less than $913 per week are to be considered nonexempt, and employers must pay them overtime at time and a half.
Here’s how employers can prepare:
1. Take stock of current exempt employees whose annual salary falls below the $47,476 threshold. The employer should conduct a cost analysis to determine whether it would be more expensive to pay those employees overtime than to increase their pay to the new minimum.
2. Create a compensation and benefits plan for each employee (except highly compensated employees) who will remain exempt. To bring employees to the new minimum salary, employers must consider whether to raise their base pay, give quarterly bonuses or commissions, or offer some combination of salary and bonuses. And they’ll need to establish a new hourly rate for each employee reclassified as hourly.
3. Determine if a new timekeeping system is needed if nonexempt employees are still required to be available by phone and email away from work.
4. Communicate to newly nonexempt employees how the changes affect their work lives. As hourly employees, they must request overtime, keep track of their hours, take required meal breaks and obey other policies. Explain why the change is happening so affected employees don’t perceive reclassification as a demotion.
5. Act now! Don’t encounter overtime pay headaches and harsh fines down the road. Jeanine Hemingway, CPA can help you and your company best navigate these regulations, analyze payroll systems, and assess your readiness before the December 1st deadline. As your trusted tax advisor, we are here to help answer questions and get you prepared.
Call today to schedule a discussion. Jeanine Hemingway, CPA
*Resources: US Department of Labor