By Bruce Bechhold, CPA, Walthall CPAs
The DOL recently released a final rule that radically increases the thresholds for overtime rules, expanding the number of employees eligible for overtime pay. Under the FLSA, employees who work more than 40 hours in a week are entitled to overtime pay, unless they meet the requirements of certain wage and duties tests.
The new rule doubles the minimum salary threshold from $455 per week to $913 per week (which amounts to $23,660 annually to $47,476 annually) and raises the exemption level for those considered to be “highly compensated employees” from $100,000 to $134,004 annual salary.
Companies have until Dec. 1, 2016, to make determinations on which employees to reclassify as nonexempt and implement the changes.
In at least 11 states, the changes to the federal rules will automatically apply to virtually all employees and employers as these states incorporate the FLSA regulations into state law by way of statute, regulation, or administrative ruling. Ohio is one of these states.
Individual coverage can come into effect if the employer does not meet the standard for enterprise coverage. An employee will be covered by the FLSA if he or she engages in interstate commerce, which can include activities such as making regular out-of-state calls, mail or email, ordering goods from out-of-state, and handling credit card transactions. The DOL issued special guidance for nonprofits that provides three examples to help nonprofit employers understand their obligations.
There is a Non-Enforcement Special Exception: The DOL will not enforce the higher salary thresholds until March 17, 2019, for providers of certain Medicaid-funded services.
For enterprise coverage, if an entity has annual revenues of at least $500,000, employees will be covered by the FLSA and overtime regulations. However, the DOL special guidance for nonprofits states that “nonprofit organizations are not covered enterprises under the FLSA unless they engage in ordinary commercial activities,” which is an activity such as operating a business, like a gift shop. Furthermore, certain nonprofit income that furthers charitable activities is not factored into the $500,000, such as contributions, membership fees, monetary and non-monetary donations, and dues (with minor exceptions).
Nonprofit organizations with budget years that end on June 30 need to develop new budgets that take the new rules into account soon. Nonprofits with budget years ending on December 31 have more time to adjust and plan for 2017.
Employers have numerous compliance options. Some may consider raising salaries for workers who are close to the new salary threshold and meet the work duties test. Other organizations may pay overtime above a salary when hours are in excess of 40 hours per week. This approach can work if the employee who usually works under 40 hours has seasonal spikes that require overtime. Another option is to evaluate and reassign employee workloads, which would distribute the work to minimize overtime. Some may convert salaried employees to hourly employees and pay overtime to make changes to benefits or operations. These are just a few options to consider by Dec. 1, 2016. With budget planning for the next year upon us, make sure your business is prepared.
While a December 1 deadline may seem far away, current review and planning regarding the impact of the raised threshold should be considered now to avoid year-end problems. CPAs understand that the DOL rule may impact major business decisions like hiring, expansion, offering new benefits or more flexible work arrangements for employees, and possibly even require reductions at your company. We can help you in assessing the effects of the new overtime-pay rule.