White Collar Exemption Change by Guest Blogger Sean Ihorn, CPAPosted: June 27, 2016
In case you haven’t heard the recent big news, on May 18th the US Department of Labor issued its final rule revising the overtime exemption regulations under the Fair Labor Standards Act. The FLSA allows for a “white collar exemption” from the general rules requiring employers to pay employees overtime when they work more than 40 hours in a week. To qualify, the employer has to satisfy three tests. The first is that the employee must be paid a fixed salary (the salary basis test). Second, that salary must meet a minimum amount (the salary threshold test), and finally, the employee’s job duties must be consistent with executive, professional, or administrative positions (the duties test). In order to be exempt from overtime pay, the employee must satisfy all three tests.
The recently issued final rule will impact the salary threshold test, where the minimum annual salary increases from its current level of $23,660 to $47,476 on December 1st. This threshold will also be adjusted every three years for inflation (projections for the first adjustment put the threshold above $51,000). In other words, the general rule will be, if you have employees making less than $47,476, you will owe them overtime if they work more than 40 hours in a week. Employers will need to evaluate salaried employees currently below the threshold and decide if they want to keep them at their current salaries and either pay overtime or ensure those employees don’t work more than 40 hours per week. Another option may be to bump an employee’s salary above the threshold if they need to work a lot of overtime. Don’t forget though, even if you bump an employee above the salary threshold, they still need to satisfy the duties test to be exempt.
The Department of Labor has estimated that up to 7.4 million establishments will be impacted by these changes and that it should take one hour to get up to speed on these changes. Legislation has already been introduced in both the Senate and the House to try to nullify the rule, so make sure you stay tuned. In the meantime though, make sure you spend that hour planning wisely.
Sean Ihorn is the CFO for SWK Partners, a media planning and buying agency with offices located in El Paso and New York. He has over 10 years of tax and accounting experience in both public accounting and industry.
In addition to his work at SWK Partners, Mr. Ihorn serves as adjunct faculty at the University of Texas at El Paso, where he focuses on courses in entity taxation including corporations and partnerships. Mr. Ihorn is a certified public accountant licensed in the State of Texas and holds a Bachelor of Science from the University of Michigan and a Masters of Accountancy, with a concentration in tax, from the University of Texas at El Paso.