JULY 2016 MidAtlantic Dealer News

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Matthew S. Wildasin is a principal with Boyer & Ritter, LLC and a member of the firm’s Closely-Held Business, Manufacturing and Distribution, and Government Audit groups. He can be reached at 717-761-7210 or mwildasin@cpabr.com WHAT YOU NEED TO KNOW ABOUT FEDERAL CHANGES TO OVERTIME PAY By Matthew S. Wildasin By now you’ve heard that more than 4 million additional workers nationwide are expected to qualify for overtime, thanks to new federal regulations that go into effect Dec. 1. But for employers, the changes issued recently by the U.S. Department of Labor at the behest of the Obama Administration go far beyond a one-time bump in salary costs. Provisions to periodically increase the overtime threshold – as well as changes that make even some high-earners qualify for additional pay – means it’s time for companies to take a close look at their workforce, how resources are allocated and future hiring strategies. Especially for smaller dealerships dealing with tight margins, the time to start developing a plan to deal with these changes is now. WHAT’S CHANGING DEC. 1 As of Dec. 1, workers making an annual salary of up to $47,476 will be eligible to earn timeand-a-half after working more than 40 hours a week. That’s double the current salary cutoff of $23,660, or from $455 to $913 a week. High-earning employees may be due something additional as well. The new rule, issued in May, raises the threshold for these employees from $100,000 to $134,004. Additionally, the new rules peg the basic ceiling to workers earning in the 40th percentile of salaries in the country’s lowest income region and calls for reviewing the overtime threshold every three years. Federal officials expect the annual threshold salary to rise to more than $51,000 by 2020. Workers who qualify for overtime are entitled to time-and-a-half for every hour worked, or 150 percent of their regular pay. It’s not all bad news for employers, however. Bonuses and incentive payments can count up to 10 percent of an employee’s salary when calculating the overtime threshold. Additionally, the new regulations don’t make changes to the existing “duties test’’ used to determine whether an employee serves in an executive or managerial capacity and is thus not eligible for overtime. In general, employees do not qualify for overtime if they: • Manage a firm or a department • Oversee two or more employees • Have hiring/firing authority or make recommendations • Job entails “discretion and independent judgement’’ regarding important business matters • Have duties directly relating to business operations or to the firm’s clients The rules will also continue to exempt from overtime regulations outside sales employees and certain computer-related job categories, such as programmers and software engineers. Because various factors go into determining overtime eligibility – and the potential penalties for failing to appropriately compensate workers – it’s a good idea to check with your CPA to make sure you’re not leaving your company vulnerable. 18 | JULY 2016 MIDATLANTIC DEALER NEWS NAVIGATING THE ROAD AHEAD The impact of the new overtime rules will depend on the size of the company, but for all employers the changes mean it is time to evaluate pay structures and time tracking mechanisms. Bottom line: a lot of workers are now going to be qualifying for overtime. Some employers may initially plan to cut workers or pay and, in the case of companies with limited options, that may be the only choice. Especially for growing businesses, now is a good time to look at work flows and see if schedule adjustments can be made to cut back on overtime. It may make sense to hire additional employees – perhaps at a lower pay scale -- to decrease overtime needs. It may also make sense to increase the salary of at least some existing worker to just above the overtime threshold. Shift differentials also count toward overall salary and in some cases may be a better option rather than a straight salary increase. Likely the answer will be a mix of all of the above – and it may be an answer that keeps changing. With the federal Department of Labor poised to reevaluate overtime thresholds every four years, companies will now have to consider future labor costs almost as if they were dealing with a renewing contract. It’s always been the case that employees represent the largest cost for most businesses. At the end of the day, the federal overtime changes mean hiring and employment levels will take on increased significance as companies look to expand and compete in an ever-changing marketplace. 3
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