Richard B. Dawson, CPA Craig M. Pike, CPA
David E. Smith, CPA Patricia S. Hodgdon, CPA
Eric A. Purvis, CPA/ABV, MST, CVA Jeremy S. Handlon, CPA
Joel H. Bassett, CPA/PFS, CMA, CIA Michael P. Kelly, CPA
Kirk J. Purvis, CPA, CFERyan W. Dawson, CPA
William H. Souter, CPA, MSTJeffery W. Hicklin, CPA
Adam P. Johnson, CPA
Dear Clients and Other Friends:
On May 18, 2016, the US Department of Labor announced a rule change related to overtime requirements, which goes into effect December 1, 2016. Although your payroll service, attorney, or employee benefits advisor will likely provide more detailed guidance, we are sending this information now to help ensure this financial issue is not overlooked. We expect there will be meaningful Department of Labor penalties for non-compliance.
The minimum salary required for an employee to be exempt from overtime is increasing from the current level of $455 per week ($23,660 annually) to $913 per week ($47,476 annually). The various requirements related to an exempt employee’s duties, as described in the attached Department of Labor guidance document, are not changing.
A separate threshold applies to highly compensated employees, who are exempt from overtime if they customarily and regularly perform at least one of the duties of an exempt employee. The current $100,000 annual salary threshold will increase to $134,004, effective December 1, 2016.
The rule change ties both of these salary thresholds to inflation. The thresholds will be adjusted every three years, with the first adjustment to occur on January 1, 2020. It is also important to note that “blue collar” workers are not exempt employees and must be paid overtime, regardless of how high their salary may be.
If your business has salaried employees whose compensation lies somewhere between the old and new thresholds, you should track their hours worked if you are not already doing so. This data will be important in helping you decide how to comply with the new rules.
One option, particularly if your exempt employee’s salary is already close to the new threshold, is to modestly increase their salary. For example, if you have an employee with a salary of $46,000 and who meets all the other requirements for overtime exemption, you could increase their salary to $48,000, effective December 1.
Alternatively, you might simply choose to pay overtime, or you could hire additional employees, to ensure that you do not need any single employee to work more than 40 hours per week.
If you utilize a payroll service company, they will likely be of significant assistance in helping you to manage compliance with the new rules.
Please feel free to contact us with any questions or concerns.
Very truly yours,