June 2016 Newsletter - Final Overtime Rules Effective December 1, 2016

 

Starting December 1, 2016, the Department of Labor has announced that it will increase the minimum salary requirement for the administrative, professional, executive, and highly compensated employee exemptions. The Fair Labor Standards Act (FLSA) requires all employers to pay their employees at least the federal minimum wage for each hour worked and overtime pay for all hours worked in excess of 40 hours in a workweek. The FLSA allows for exemptions from these overtime and minimum wage requirements for certain exempt or "salaried" employees. FINAL RULES Starting December 1, 2016, the minimum salary requirement for the administrative, professional (includes salaried computer professional), and executive exemptions will increase from $455 per week to $913 per week. Minimum annual salary will increase from $23,660 to $47,476 per year. This rule states that employees who meet the administrative, professional, and executive exemptions must be paid a minimum of $913 per week in order to be exempt from the FLSA's minimum wage and overtime requirements. Exempt computer employees may also be paid hourly as long as they are paid at least $27.63 per hour, which doesn't change under the new rule. BONUSES For the first time, employers will be able to use bonuses, incentive payments, or commissions to make up 10 percent of the minimum salary requirement as long as these forms of compensation are paid at least quarterly. To comply with this rule, employers may make one final catch-up payment no later than the next pay period after the end of quarter if total compensation does not equal or exceed 13 times the minimum weekly salary of $913. COMPLIANCE RECOMMENDATIONS OPTION 1: RAISE EXEMPT EMPLOYEES' SALARIES

If you have exempt (salaried) employees who are paid less than the new minimum, you can simply raise their salaries to meet the new requirement. OPTION 2: RECLASSIFY EMPLOYEES AS NON-EXEMPT If exempt employees don't meet the new salary requirement, you can reclassify them as non-exempt and pay them overtime whenever they work more than 40 hours in a workweek. If these employees rarely work more than 40 hours per week, simply convert their salary to an hourly wage (divide their weekly salary by 40 hours). However, if these employees regularly work more than 40 hours per week and you want to keep your compensation cost the same, then you would need to account for the overtime premium when you reclassify them as non-exempt. Example: An exempt employees' current salary is $660 per week and the employee regularly works 50 hours per week but you want to reclassify them as a non-exempt employee and keep your costs the same. Assuming no other compensation beyond salary is being paid, you calculate the hourly wage as follows: $660 weekly salary = $12 hourly rate [40 hours + (10 overtime hours x 1.5)]

Mitchell B. Brock | Payroll Manager Mitch was born and raised in Lewisburg, TN before attending the University of Tennessee at Chattanooga on a golf scholarship. After graduating with a Business Management degree from UTC, Mitch worked as a golf professional at the Chattanooga Golf and Country Club for over 8 years. In February 2015, Mitch joined the J.D. Frost & Company team as the payroll manager. Outside of the office, Mitch enjoys playing golf, fishing, boating, or anything outdoors.

Jonathan Frost, CPA/MBA

(O) 423-486-9300 (D) 423-486-9301 (C) 423-503-6014 (F) 423-486-9296

J.D. Frost & Company, PLLC, 412 Georgia Ave, Suite 102, Chattanooga, TN 37415