Understand and Prepare for the Changes Gidget Schutte, CPA and Adam Rutherford, CPA
The information provided during this presentation is a summary to help you understand the legal framework surrounding overtime rules. These rules are VERY fact-specific, and what you do and how you comply is a business-specific decision. The information provided during this presentation is not intended as legal advice.
Background on current overtime exemptions Rule changes created by Final Overtime Rule Impact to businesses and employees Timeline for rule implementation Examples Questions
NON-EXEMPT: NON-EXEMPT: Means that you have protections under the FLSA to receive minimum wage and overtime pay over a 40 hour work- week.
The Fair Labor Standards Act gave most Americans the right to a minimum wage and time-and-a half pay for more than 40 hours of work in a week
The FLSA Rules apply to most hourly and salaried workers, but not to some white collar workers not to some white collar workers whose salaries and duties EXEMPT EXEMPT them from overtime pay requirement
The White Collar Exemption White Collar Exemption was originally meant for highly-paid workers who had better benefits, job security and opportunities for advancement.
Ent Enterprise C rprise Coverage verage YES NO Individual Coverage Individual Coverage >$500,000 >$500,000 COVERED BY FLSA Interstate Commerce? Interstate Commerce? OT RULES THIS IS WHERE THE NEW SALARY THIS IS WHERE THE NEW SALARY RULES APPLY RULES APPLY Duties Test: Duties Test: YES NOT NOT NO COVERED EAP “White EAP “White Collar” Collar” BY FLSA OT RULES Exemptions Exemptions Highl Highly Executive Executive Administrative Administrative Profes Professional sional Compensate Compe sated
There are basically two ways to get an exemption: E-A-P EXEMPTION E-A-P EXEMPTION: “Executive”, “Administrative”, “Professional” – the White Collar Employees H-C-E EXEMPTION H-C-E EXEMPTION: “Highly Compensated Employee”
To be Exempt under the Executive, To be Exempt under the Executive, Administrative and Professional (EAP) Administrative and Professional (EAP) exemption: exemption: 1. 1. Must be paid on a salary basis (SALARY BASIS (SALARY BASIS TEST) TEST) 2. 2. Salary must be more than the standard SALARY SALARY THRESHOL THRESHOLD D (increasing from $455/week ($23,660 annual) to $913/week ($47,476 annual). 3. 3. Primary duties must be consistent with Executive, Professional or Administrative positions (THE DUTIES TEST) THE DUTIES TEST)
If If ALL ALL of these criteria are met, the of these criteria are met, the employee is considered employee is considered EXEMPT EXEMPT from wage and overtime rules. from wage and overtime rules. If not all are met, employee is If not all are met, employee is NON-EXEMPT and entitled to NON-EXEMPT and entitled to receive overtime at 1 ½ times receive overtime at 1 ½ times hourly rate for over 40 hours/week hourly rate for over 40 hours/week
There are special exemptions special exemptions for specific jobs (outside of EAP exemption): ◦ Teachers (if employed by “Educational Establishment”) ◦ Doctors ◦ Lawyers ◦ Outside sales employees ◦ Time limited non-enforcement policy for providers of Medicaid-funded services for individuals with intellectual or developmental disabilities in residential home and facilities with 15 or few beds. ◦ And possibly others….
Primary duty Primary duty (>50%) (>50%) : : Managing the enterprise, department or subdivision Generally directs work of directs work of at least 2 at least 2 or more FTE Authority to Authority to hire/fire hire/fire or make such recommendations on hiring/firing, advancement, promotion, change of status
Primary duty Primary duty (>50%) (>50%) : : office or non- manual work directly related to management or general business operations of employer or its customers ◦ includes exercise of discretion and independent judgment with respect to matters of significance
Primary duty Primary duty (>50% (>50%) : : Performance of work requiring advanced knowledge advanced knowledge, defined as work primarily intellectual in character requiring consistent exercise of discretion and judgment Advanced knowledge Advanced knowledge ◦ Field of science or learning ◦ Customarily acquired by Customarily acquired by prolonged course of specialized prolonged course of specialized intellectual instruction intellectual instruction Creative professional Creative professional ◦ Primary duty: Performance of work requiring invention, imagination, originality, or talent in recognized field of artistic or creative endeavor
The criteria required to The criteria required to be exempt from be exempt from federal overtime pay requirements as a federal overtime pay requirements as a highly-compensated employee (HCE) include: highly-compensated employee (HCE) include: 1. 1. Total Annual Compensation Total Annual Compensation = $100,000 minimum (increasing to $134,004) 2. 2. Base salary Base salary = standard exemption threshold (currently $23,660, increasing to $47,476) 3. 3. Primar Primary duty duty = office or non-manual work. 4. Perform at least one at least one of the exempt Executive, Administrative, or Professional duties.
EFFE EFFECTIVE IVE DECE DECEMBER 1, 2016 1, 2016 Minimum salary thresh Minimum salary threshold increase: old increase: $455/week $913/week $23,660 annually $47,476 annually Highly compensated employee threshold increase: Highly compensated employee threshold increase: $100,000 $134,004 Thresholds will automatically update every 3 Thresholds will automatically update every 3 years, years, beginnin beginning January 1, 2020 January 1, 2020
Automatic increases every 3 years – Automatic increases every 3 years – to o account for account for inflation inflation Employer Employers will s will receive 150 days notice of receive 150 days notice of the the increase increase First automatic update effective: January 1, First automatic update effective: January 1, 2020 (announced August 1, 2019) 2020 (announced August 1, 2019) Threshold expected to be $51,000 in 2020
EAP Exempt EAP Exe ptio ion HCE CE Exe Exempt ption ion Meet Meet Standard Salary Standard Salary X X X X Threshold Thres old of $47,476 f $47,476 Total Total Salary Thre alary Thresh shold old X of $134,004 of $134,004 Up to 10% of salary if In Include B ude Bonuses * ses * X paid quarterly * Bonuses defined as non-discretionary bonuses, incentive payments, and commissions.
Increased payroll costs Increased payroll costs ($1.2 billion avg. ($1.2 billion avg. annual wage increa annual wage increase se) Increased time costs Increased time costs ◦ Monitoring reclassified employees ◦ Developing new compensation/benefit materials ◦ Creating new timekeeping/recordkeeping systems Compliance costs Compliance costs ◦ Training costs ◦ New equipment or programs to help manage changes Hiring and growth decisions Hiring and growth decisions Decrease base pay to allow for increased Decrease base pay to allow for increased overtime pay overtime pay
After evaluation – no changes no changes to pay or hours necessary (no overtime typically worked). Weekly pay is between old threshold of$455/wk and new threshold $913/wk. Raise Salaries Raise Salaries to maintain exempt status. Pay overtime Pay overtime above a salary. Reorganize workloads Reorganize workloads, adjust schedules, or spread work hours. Adjust wages Adjust wages (downward to keep regular wages plus overtime the same).
Morale issues Morale issues ◦ Employees may view reclassification as a demotion ◦ Changes to current compensation scheme ◦ Pushing work up the chain to exempt employees Could create issues with exempt employees classification Benefits changes Benefits changes ◦ Basics: health insurance, vacation, sick time policy changes ◦ Other: cell phones, travel, vehicle, per diem, graduate tuition assistance, etc. Limits to Limits to flexible work schedules flexible work schedules ◦ Telecommuting ◦ Flex hours ◦ Work-share programs ◦ Fewer part time employees
•Compare changes to each employees salaries 1st •Identify employees for reclassification 2nd •Determine best approach for reclassification (employee specific) 3rd •Talk to manager and employees 4 th •Update payroll systems 5th •Schedule training 6th
John currently has a salary of John currently has a salary of $38,000. He $38,000. He works an aver works an average of age of 45 hours per week 45 hours per week. He would receive approximately $7,127 of He would receive approximately $7,127 of overtime pay during the year. overtime pay during the year. ◦ $38,000 ÷ $38,000 ÷ 2,080hrs/yr 2,080hrs/yr = = $18.27/hr $18.27/hr ◦ $18.27/hr $18.27/hr × 1.5 × 1.5 × 260 overtime hours = 260 overtime hours = $7,127 $7,127 Total annual pay would be $45,127. Under Total annual pay would be $45,127. Under salary limit salary limit by $2,349, so he is non-exempt. by $2,349, so he is non-exempt. Cost to Cost to employer is additional effort in employer is additional effort in monitoring time. monitoring time.
Recommend
More recommend
