Preparations Continue for the New Overtime Rule

 By: Carmen George, CPA- BSST Manager

We are committed to keeping you updated as much as possible on the topic of the significant changes to the federal rules regarding overtime eligibility for exempt employees. These will go into effect on December 1, 2016.  At this time, the information we have to share with you is still very basic in nature.  But again, because of these changes you should continually be reviewing the overtime eligibility of your employees and determine what changes, if any, you may need to make to comply with the new federal rules.  

Let me begin by summarizing the basic three-prong test that must be met in order to claim an employee is overtime-exempt, keeping mind that there are many important exceptions that may apply once this basic analysis is done.  In order to be exempt from receiving overtime, all three (3) of the following tests must be met by the employee in question: 

·         The employee must be paid on a salary basis, i.e., the employee must receive a predetermined and fixed salary that is not subject to reduction because of the quality or quantity of work.  For example, if an employee’s pay can be docked in increments of less than a day; he or she is not being paid on a salary basis.

·         The amount of salary paid to the employee must meet the minimum required salary level ($47,476 per year for a full-time employee commencing 12/1/2016).

·         The employee’s primary job duties must involve the kind of work associated with executive, administrative, professional, outside sales or computer employees (also known as the “standard duties test”).

The standard duties test for executive, administrative, professional, outside sales or computer employees remain unchanged under the new federal rules.  However, now would be a good time to review these exemptions and conduct a factual analysis based upon what the employee actually does for your business. Please remember job titles never determine exempt status under the law.

Additionally, effective December 1, 2016, the compensation level for “highly compensated employees” will increase to $134,004 annually.  Such highly compensated employees are exempt from overtime under a “relaxed duties” test whereby they must only perform one of the duties of an exempt executive, administrative or professional employee.  To put it more simply, it is highly likely that anyone making more than $134,004 will be exempt from overtime, unless they are a production or blue collar worker.

As you begin to review the overtime eligibility of your employees and determine what changes, if any, you may need to make to comply with the new federal rules, I encourage you to call with your questions.  If you would like additional information about a particular exemption, please do not hesitate to contact us.