November 27, 2016
By Beatrice Casseus and Kathy Hempel, Rucci Bardaro & Falzone, P.C.
UPDATE: in late November, a federal court granted a preliminary injunction preventing a new wage rule from taking effect that would have made certain white collar workers eligible for overtime pay. The ruling pushes back the December 1, 2016 effective date indefinitely, and puts numerous businesses who had been preparing for the new requirement in limbo while the court weighs a legal challenge to the requirement.
(October 27, 2016) – In May, the U.S. Department of Labor released new rules governing overtime pay as it relates to “white collar” employees. Exemption amounts were increased, and the mechanisms for determining whether an employee qualified were modified.
Now the day of reckoning is fast approaching. Employers have until December 1, 2016 to assess the impact of the new rules on their employees and make any necessary changes. Any company found to be out of compliance thereafter will potentially face stiff and recurring penalties, including payment of back wages, civil penalties and attorney fees.
Here is a brief rundown of the new law’s highlights, as well as suggested steps for assessment, implementation, and where to find additional help.
Highlights of the new DOL rules
As before, to be exempt from overtime pay, employees must meet certain tests regarding job duties.
- Assuming they pass these tests, white collar workers must now earn at least $913 per week – or $47,476 per year – to be exempted from overtime pay requirements. The old limits were $455 per week and $23,660 per year.
- The new rules don’t apply to hourly workers, who are eligible for overtime no matter what their earnings.
- Highly-paid, salaried workers (above $134,004 per year) are automatically disqualified from earning overtime pay as long as they pass a relaxed duties test.
- Employers can use nondiscretionary bonuses and incentives to satisfy up to 10 percent of a worker’s salary level, provided these are paid on a quarterly (or more frequent) basis.
- Salary level limits will be automatically updated every three years, beginning January 1, 2020.
The financial impact of implementing these new rules is not trivial. The DOL estimates that direct costs to employers nationwide will average $295 million per year over the first ten years. This includes costs for regulatory familiarization, determining workers’ new exemption statuses, notifying employees of the changes and updating payroll systems. In Massachusetts alone, an estimated 84,000 employees will now be eligible for overtime pay.
What should a company do?
Like any other business challenge, finding the best way forward boils down to three important steps; assessment, planning and implementation. The first goal is to assess whether your company is in compliance with the new rules by performing a “salary rollcall” of employees. This will help you determine which employees, if any, are affected.
Based on this assessment, your plan for complying with the new rules might include any one of – or a combination of – the following strategies:
- Raise the pay of workers making less than $913 per week to bring them above the new threshold, thus making them exempt. (For example, Walmart has elected to raise entry level manager salaries from $45,000 to $48,500 in order avoid paying overtime.)
- Leave formerly exempt workers below the new salary levels and begin paying them time-and-a-half for overtime worked.
- Adjust workers’ schedules to reduce or eliminate overtime work, then compensate for the resulting downshift in production by hiring additional staff.
- Adjust your company’s payroll, training and record-keeping processes to more closely monitor and manage the impact of the new rules on the financial health of your business.
- Communicate with your employees – early and often – about any changes taking place, and how these changes will affect them.
Where to turn for assistance
As overwhelming as the new regulations might seem, business owners and managers needn’t feel threatened by the specter of financial ruin, nor do they need to feel that they must go it alone.
As your accounting partner and business advisor, RBF can relieve much of the burden of assessment and planning, but be sure to get us involved as soon as possible. Your payroll company can help with system adjustments and monitoring as the new rules take effect. Or contact the DOL’s Wage and Hour Division – www.wagehour.dol.gov, or 1-866-4-USWAGE (1-866-487-9243) for further information and assistance.
About Rucci Bardaro & Falzone, P.C.
Founded in 1987, Rucci, Bardaro & Falzone (www.rbfpc.com) provides audit, tax and consulting services to business leaders and their growing companies in an array of industries. The firm is the New England-area affiliate of Russell Bedford International, a leading global network of independent accounting and business consulting firms with more than 290 offices in 100 countries.