Academic journal article Journal of Accountancy

Time to Prepare for Overtime Changes

Academic journal article Journal of Accountancy

Time to Prepare for Overtime Changes

Article excerpt

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SPONSORED REPORT

As a result of recent changes to the Fair Labor Standards Act (FLSA) rules on overtime pay, millions of workers will be eligible for time-and-a-half pay, effective Dec. 1,2016. The changes are estimated to affect over 4 million workers and effectively double the salary threshold below which an employee is eligible for overtime pay from $23,660 annually ($455 per week) to $47,476 annually ($913 per week).

For employers, there is plenty to think about. For those not currently tracking the hours of salaried personnel, implementing a system to track such employees' hour may be warranted.

The FLSA provides an exemption from both minimum wage and overtime requirements for bona fide executive, administrative, and professional (EAP) employees. The exemption also applies to outside sales employees and certain employees in computer-related occupations. These exemptions are sometimes referred to collectively as the "white collar" exemptions. Not-for-profits are subject to the same rules as for-profit businesses. In other words, there is no special exemption from these rules for not-for-profits.

An employee's job title does not determine exempt status under the FLSA. Additionally, receiving a salary, alone, does not exempt an employee from overtime and minimum wage protections. Thus, millions of salaried white-collar employees are not eligible for the white-collar exemptions because their duties or earnings do not meet the requirements. Such employees are entitled to both the minimum wage and overtime pay.

Three tests must generally be met to claim a white-collar exemption: (1) the salary-basis test; (2) the salary-level test; and (3) the standard-duties test.

SALARY-BASIS TEST

Being paid on a "salary basis" means an employee regularly is paid a predetermined amount for each pay period and is paid on a weekly or less frequent basis. To qualify as paying the employee on a salary basis, the employer cannot use variations in the quality or quantity of the employee's work to reduce the employee's predetermined amount of pay. Generally, the employer must pay an exempt employee his or her full salary for any week in which the employee performs any work, regardless of the number of days or hours worked; however, exempt employees do not need to be paid for any workweek in which they perform no work.

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The prohibition against deductions from pay in the salary-basis requirement is subject to certain exceptions. For example, the employer is permitted to reduce an exempt employee's pay when the employee is absent from work for one or more full days for personal reasons other than sickness or disability.

Administrative, professional, and computer employees may be considered to be paid on a salary basis, even if they are actually paid on a "fee basis." These employees will be considered to be paid on a fee basis if they are paid an agreed sum for a single job, regardless of the time required for its completion. The test for whether payment is on a fee basis generally looks at whether the fee is paid for a unique job, rather than for a series of jobs repeated a number of times and for which identical payments repeatedly are made. To determine whether the fee payment meets the minimum salary-level requirement to be exempt from the overtime rules, divide the fee by the number of hours worked on the job and multiply by 40 to ascertain whether the payment is at a rate that would amount to at least $913 per week if the employee worked 40 hours.

SALARY-LEVEL TEST

Under the salary-level test, an employee must be paid at least $913 per week to qualify for one of the white-collar exemptions. Exempt computer employees may be paid at least $913 per week or on an hourly basis of at least $27.63 an hour.

Under the new rules, employers may use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the standard salary-level amount (up to $91 of the $913-per-week threshold). …

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