Overview of Changes

On December 1, 2016, new overtime rules will significantly raise the salary level used to determine whether employees must receive overtime pay. This change is expected to affect more than 4 million salaried employees, and while the change is viewed as a positive by many workers, it will create both compliance and planning issues for employers.

Under the new rule, the wage threshold will more than double from the current threshold of $23,660 ($455 per week) to $47,476 ($913 per week). Going forward, the limit will be adjusted every three years. Employees earning less than $47,476, regardless of their job responsibilities, will be entitled to overtime pay for any hours worked in excess of 40 hours in a work week.

Employees earning more than $47,476 may or may not be exempted from overtime rules depending on their responsibilities. Two tests determine whether these employees can be treated as “exempt,” and thus not entitled to overtime pay. A duties test determines whether employees making over $47,476 are exempt from the overtime pay requirement. Employees who “primarily perform executive, administrative, or professional duties,” are deemed exempt. Additionally, highly compensated employees – now defined as those making $134,004 and more are always considered exempt.

5 Steps for Employers

The new overtime rules require strategic action by employers. Failure to understand the rules and their effects could result in substantial cost and even penalties. Following these five steps will help ensure compliance and minimize additional cost.

1. Ensure compliance – understand the new rules, communicate them to your employees and create a plan for implementation.
2. Identify affected employees – understanding what current and future employees will be affected by the new rules will be the starting point for compliance and planning.
3. Assess the additional payroll costs – determine increased payroll costs should you make no changes to salaries, hourly rates, and hours worked.
4. Identify cost saving measures – various strategies can be implemented to save money. In some cases, it may be less expensive to raise employees pay to reach the new $47,476 threshold rather than pay overtime hours. You could also hire additional employees, or change your scheduling or responsibilities to minimize hours worked by any employees over 40 in a week.
5. Contact your advisor – remember that your CPA is available to help. From explaining the new rules, to assessing the impact on your company to developing a plan, we are available to help.

For more information on the new payroll rules, call us today.