How many exempt employees work in your office, company or organization? These are employees who are paid a salary, and no matter how many hours they work, they are not eligible for overtime pay. Regardless of your answer, this number may change in December.
Exempt or Non-Exempt?
Unless determined to be exempt from the overtime rules, employees must receive pay for hours worked in excess of 40 a week. The overtime is paid at a rate of not less than one and a half of their regular pay rate. The employers are also liable for the payroll taxes.
There are two tests used to determine if an employee is exempt from the overtime rules:
The Department of Labor has come out with new overtime rules that take effect on December 1, 2016. The rules will raise the salary level that is used in the “wage threshold test.” Under the new rule, the salary level is more than doubling from today’s $23,660 ($455 per week) to $47,476 ($913 per week). In the future, the limit will be adjusted every three years beginning on January 1, 2020.
The wage threshold for the highly compensated also went up — from $100,000 to $134,004.
What You Need to Know
The results of these changes are as follows:
Assess the Impact of the Changes
Salaried employees that just became eligible for overtime pay because of the rule changes will not need to be switched to being paid hourly or to punch a time clock. However, it will be important to track their time to ensure that:
Here are some immediate steps to consider in response to the new rules. Start by answering these questions:
Once you get a basic handle on this information, other questions to consider include:
There are no easy answers to these questions. Each possible response raises its own set of issues.
Your Employees Are Talking About It
It’s a safe bet that your employees will have heard about the impending rule change, and they’ll be looking to you for answers about how it will affect them. For most employers, it’s probably wise to begin engaging employees on the topic, even if you haven’t mapped out the details of how you will respond. An honest “we’re figuring this out” answer can be better than silence.
If you need additional information on the final rules, we can help.
Richard L. Chrisman, CPA, MST is the Managing Shareholder of Hungerford Nichols CPAs + Advisors, a Tax, Auditing and Business Consulting firm with offices in Grand Rapids and Greenville, MI. The firm is celebrating 75 years of helping local businesses.