SLIDE 1
Understand and Prepare for the Changes
Gidget Schutte, CPA and Adam Rutherford, CPA
SLIDE 2 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.
SLIDE 3
Background on current overtime exemptions Rule changes created by Final Overtime Rule Impact to businesses and employees Timeline for rule implementation Examples Questions
SLIDE 4 NON-EXEMPT: NON-EXEMPT: Means that you have protections under the FLSA to receive minimum wage and
- vertime pay over a 40 hour work-
week.
SLIDE 5
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
SLIDE 6
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
SLIDE 7 The White Collar Exemption White Collar Exemption was
- riginally meant for highly-paid
workers who had better benefits, job security and opportunities for advancement.
SLIDE 8 Ent Enterprise C rprise Coverage verage >$500,000 >$500,000 Individual Coverage Individual Coverage Interstate Commerce? Interstate Commerce? Duties Test: Duties Test: EAP “White EAP “White Collar” Collar” Exemptions Exemptions Administrative Administrative Profes Professional sional Executive Executive Highl Highly Compe Compensate sated
YES
COVERED BY FLSA OT RULES
NO
NOT NOT COVERED BY FLSA OT RULES
NO
THIS IS THIS IS WHERE THE NEW SALARY WHERE THE NEW SALARY RULES APPLY RULES APPLY
YES
SLIDE 9
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”
SLIDE 10
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)
SLIDE 11 If If ALL ALL of these criteria are met, the
- f 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
SLIDE 12 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.
SLIDE 13
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
SLIDE 14 Primary duty
Primary duty (>50%)
(>50%):
: office or non- manual work directly related to management or general business
- perations of employer or its
customers
- includes exercise of discretion and
independent judgment with respect to matters of significance
SLIDE 15 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
SLIDE 16 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.
Base salary = standard exemption threshold
(currently $23,660, increasing to $47,476)
3.
Primary duty duty = office or non-manual work.
at least one of the exempt Executive, Administrative, or Professional duties.
SLIDE 17 EFFE EFFECTIVE IVE DECE DECEMBER 1, 2016 1, 2016 Minimum salary thresh Minimum salary threshold 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
SLIDE 18 Automatic increases every 3 years –
Automatic increases every 3 years – to
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
SLIDE 19 EAP Exe EAP Exempt ptio ion HCE CE Exe Exempt ption ion Meet Meet Standard Salary Standard Salary Thres Threshold
f $47,476 X X X X Total Total Salary Thre alary Thresh shold
X In Include B ude Bonuses * ses * Up to 10% of salary if paid quarterly X
* Bonuses defined as non-discretionary bonuses, incentive payments, and commissions.
SLIDE 20 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
SLIDE 21 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).
SLIDE 22 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
SLIDE 23 1st
- Compare changes to each employees salaries
2nd
- Identify employees for reclassification
3rd
- Determine best approach for reclassification (employee specific)
4th
- Talk to manager and employees
5th
6th
SLIDE 24 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
- vertime pay during the year.
- vertime pay during the year.
- $38,000 ÷
$38,000 ÷ 2,080hrs/yr 2,080hrs/yr = = $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.
SLIDE 25 Jane currently has a salary of
Jane currently has a salary of $40,000. She $40,000. She works an aver works an average of age of 45 hours per week 45 hours per week.
She would receive $7,501 of
She would receive $7,501 of overtime pay
during the year. during the year.
$40,000 ÷ 2,080hrs/yr 2,080hrs/yr = = $19.23/hr $19.23/hr
$19.23/hr × 1.5 × 1.5 × 260 overtime hours = 260 overtime hours = $7,501 $7,501
Total annual pay would be $47,501. It would
Total annual pay would be $47,501. It would be similar cost as raising annual salary to be similar cost as raising annual salary to $47,476 limit $47,476 limit to be exempt. to be exempt.
If the salary is raised,
If the salary is raised, there is no requirement there is no requirement to to monitor employee’s time. monitor employee’s time.
SLIDE 26 Department of Labor –
https://www.dol.gov/featured/overtime
DOL Wage and Hour Divisions-
- (866) 4 USWAGE ((866) 487-9243)
Payroll Service providers (i.e. Paychex, ADP, etc) SHRM (Society for Human Resource
Management)-FLSA Overtime Resources
- https://www.shrm.org/legalissues/federalresources/pag
es/overtime-rule-hub.aspx
Schutte & Hilgendorf, CPAs (928) 778-0079
www.prescottaccountants.com
SLIDE 27
Questions?
SLIDE 28
(928) 778-0079 www.prescottaccountants.com
