UPDATE! The new overtime laws will NOT go in to affect on December 1st! On November 22nd, a federal judge in Texas issued a nationwide injunction blocking the Department of Labor's rule requiring overtime pay for 4 million workers. In the judge's decision he writes that 21 states and 50 business groups have sued to block the rule stand a significant chance at winning their lawsuit. And, that these states and businesses would suffer serious financial harm if the new requirements took affect on December 1st.
The Obama Administration argues that it is merely updating the rule to keep up with the modern economy, but the judge said that the pay increase would eliminate the exception labor law for bona fide executives, administrative or professional employees.. The judge also said that the Department of Labor must examine the duties of the employees to determine who fits the exception.
The details are explained below in the blog post.
BACKGROUND
The Fair Labor Standards Act (FLSA) was created in 1938. The FLSA is a federal law applies to employees in all 50 states. This Act required that most employees be paid at least minimum wage for all hours that they work, and overtime pay if someone works more than 40 hours in a week. The rate of overtime pay was established at 1.5 times the regular rate of hourly pay.
EXEMPTIONS
Certain employees are granted an exemption from both minimum wage and overtime laws. They are:
-Bone Fide Executives
-Administrative Employees
-Professional Employees
-Outsides Sales Employees
-Certain Computer Employees
Merely holding a specific job title is not enough to claim an exemption. To be granted an exemption, employees’ job descriptions and everyday duties must meet certain eligibility requirements.
WHAT IT MEANS TO BE SALARIED
Salaried employees are paid a predetermined amount of compensation each pay period on a weekly, or less frequent, basis. For most employees, the predetermined amount cannot be reduced because of variations in the quality or quantity of work. But, the FLSA also has exemptions for this, too.
BENEFITS OF SALARY
Traditionally, being salaried was reserved for higher-level positions. There was an elevated status that came along with being a salaried employee.
The employee has earned a position that no longer requires them to punch a clock or track their time.
Salaried employees often experience more flexibility with their schedule. Many employers have a trusting attitude towards salaried employees. The mentality appears to be that as long as the work is done—and done well—they don’t care about how and when it takes place. This is a benefit to many salaried positions that is as precious as financial compensation.
Salaried employees are paid a predetermined amount of compensation each pay period on a weekly, or less frequent, basis. For most employees, the predetermined amount cannot be reduced because of variations in the quality or quantity of work. But, the FLSA also has exemptions for this, too.
BENEFITS OF SALARY
Traditionally, being salaried was reserved for higher-level positions. There was an elevated status that came along with being a salaried employee.
The employee has earned a position that no longer requires them to punch a clock or track their time.
Salaried employees often experience more flexibility with their schedule. Many employers have a trusting attitude towards salaried employees. The mentality appears to be that as long as the work is done—and done well—they don’t care about how and when it takes place. This is a benefit to many salaried positions that is as precious as financial compensation.
WHAT HAPPENS DECEMBER 1st
On December 1st, 2016—yeah, next week—the Department of Labor’s (DOL) final rule updating overtime regulations goes into effect. The DOL has been updating regulations that govern exemption status over the past two years.
What are the results of their work, you might ask? Their work sets the standard salary level at the 40th percentile of earnings of full time salaried workers in the lowest-wage census region. The current lowest wage region is located in the southern region of the US, with an average weekly pay of $913 and $47,476 as an annual salary for a full-time employee.
An annual compensation requirement was set for highly compensated employees (HCE), too. The details of this measure are outside the scope of this blog post and will not be discussed at this time.
Another benefit of the FLSA was that it also established a mechanism to automatically update the salary and compensation levels every three years to insure they stay at or above the standards set forth in the Act. And, to insure that they continue to provide useful and effective tests for exemption. Every three years the base salary requirements will be adjusted to match the current 40th-percentile earnings.
Additionally, the final rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new standard salary level. This, too, is outside the scope of this article and not discussed here.
On December 1st, 2016—yeah, next week—the Department of Labor’s (DOL) final rule updating overtime regulations goes into effect. The DOL has been updating regulations that govern exemption status over the past two years.
What are the results of their work, you might ask? Their work sets the standard salary level at the 40th percentile of earnings of full time salaried workers in the lowest-wage census region. The current lowest wage region is located in the southern region of the US, with an average weekly pay of $913 and $47,476 as an annual salary for a full-time employee.
An annual compensation requirement was set for highly compensated employees (HCE), too. The details of this measure are outside the scope of this blog post and will not be discussed at this time.
Another benefit of the FLSA was that it also established a mechanism to automatically update the salary and compensation levels every three years to insure they stay at or above the standards set forth in the Act. And, to insure that they continue to provide useful and effective tests for exemption. Every three years the base salary requirements will be adjusted to match the current 40th-percentile earnings.
Additionally, the final rule amends the salary basis test to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the new standard salary level. This, too, is outside the scope of this article and not discussed here.
HOW WILL EMPLOYERS REACT TO THESE NEW REGULATIONS
There are numerous ways employers could react to the new regulations. Let’s review a few scenarios.
Employers could migrate current salaried employees earning below $913 a week back to hourly pay at a comparative rate to their current salary. The employee will then be required to track time and will need to be paid overtime if they work in excess of 40 hours a week.
Alternatively, they could keep salaried employees that make less than $913 a week at their current salary. However, the employee will be required to track their time and submit reports documenting all hours worked in excess of 40 per week. The employee will need to be paid at 1.5 their equivalent hourly rate for all hours worked in excess of 40 hours. Their equivalent hourly rate has to be calculated based on their base annual salary.
A third option is to give the salaried employee a raise by increasing salaried workers wages to at least $913 a week.
How will the new regulations affect your business? Employers do have choices for how to implement these changes. To learn more you can visit the United States Department of Labor Website at https://www.dol.gov/whd/overtime/final2016/. We have summarized the main points and how they may impact your business. Mill Creek Accounting Services is available for consultations to help you make the best choice for your business.
There are numerous ways employers could react to the new regulations. Let’s review a few scenarios.
Employers could migrate current salaried employees earning below $913 a week back to hourly pay at a comparative rate to their current salary. The employee will then be required to track time and will need to be paid overtime if they work in excess of 40 hours a week.
Alternatively, they could keep salaried employees that make less than $913 a week at their current salary. However, the employee will be required to track their time and submit reports documenting all hours worked in excess of 40 per week. The employee will need to be paid at 1.5 their equivalent hourly rate for all hours worked in excess of 40 hours. Their equivalent hourly rate has to be calculated based on their base annual salary.
A third option is to give the salaried employee a raise by increasing salaried workers wages to at least $913 a week.
How will the new regulations affect your business? Employers do have choices for how to implement these changes. To learn more you can visit the United States Department of Labor Website at https://www.dol.gov/whd/overtime/final2016/. We have summarized the main points and how they may impact your business. Mill Creek Accounting Services is available for consultations to help you make the best choice for your business.
For a complimentary consultation about how Mill Creek Accounting Services can help your small business contact Robert at Mill Creek Accounting Services in Missoula. We offer affordable accounting for your small business that will save you time and money.
Contact Robert at: [email protected] Phone: 406-926-1057
Mill Creek Accounting Services, LLC was founded with the mission to provide a resource for accounting services to Missoula and its surrounding area organizations. Mill Creek Accounting Services have seen it over and over again, when institutions focus purely on their production and service needs, while they neglected their accounting systems. The results spoke for themselves: unreliable financial information, slow invoicing and payment collections, strained relationships, and crushing stress on owners and staff. There is a better way to do business!
Click here to learn more: www.millcreekaccounting.com. You can schedule a complimentary consultation for your small business in Missoula, MT.
Contact Robert at: [email protected] Phone: 406-926-1057
Mill Creek Accounting Services, LLC was founded with the mission to provide a resource for accounting services to Missoula and its surrounding area organizations. Mill Creek Accounting Services have seen it over and over again, when institutions focus purely on their production and service needs, while they neglected their accounting systems. The results spoke for themselves: unreliable financial information, slow invoicing and payment collections, strained relationships, and crushing stress on owners and staff. There is a better way to do business!
Click here to learn more: www.millcreekaccounting.com. You can schedule a complimentary consultation for your small business in Missoula, MT.