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New overtime rules coming in December 2016

New Pay Requirements for Employers (FLSA Overtime Rule Change)

If you currently have salaried employees who earn less than $47,476 annually, the Fair Labor Standards Act (FLSA) ruling requires that you convert them to hourly by December 1, 2016.  The current income threshold was only  $21,000.  Generally, overtime regulations apply to businesses with annual sales or business of at least $500,000 and employees of specific businesses covered by the FLSA. The Department of Labor predicts this will extend overtime protections to 4.2 million workers within the first year.

There are three assessments to determine if an employee is exempt from receiving overtime
(1.5 times the regular rate of pay for any hours worked beyond 40 in a workweek).

Salary Level – Does your employee make less than $47,476 annually? If so, he or she is now eligible to be hourly and paid overtime, regardless of job classification.

Salary Basis – Employees must be paid their full salary, regardless of quality or quantity. Employers can use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the minimum salary, which means the lowest base salary you can pay an employee is actually $42,728.40. The remaining payments must be made on at least a quarterly basis.

Duties Test –There is no change to the duties test and being hourly or salary is not purely a choice. An employee must primarily perform executive, administrative, professional, computer, or outside sales duties in order to be exempt from overtime, if above $47,476/year. Job titles do not determine exempt status.

Employer Options

1. Convert employees who earn less than $47,476 per year to hourly compensation;
2. Raise employees’ salaries for those who continue to meet the duties test above $47,476;
3. Limit employee hours to 40 per week or
4. Adjust wages to account for overtime (see example below)

How to convert current salary employee to hourly:

Your salaried employee currently earns $40,000 per year, which you would like to keep the same. He or she typically works 40 hours per week (2,080 hours per year), with about 200 extra hours of overtime per year.

For additional information, please give our office a call.

The content of this transmission does not constitute a professional service nor does it constitute a tax opinion under IRS Circular 230. Always consult with a competent professional service provider for advice on tax, accounting, and other financial matters specific to your situation. If you wish to engage our firm for this purpose, please contact our office.

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