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Overtime Rules are changing! Is your business one of the millions who are in non-compliance and don’t know it?

Posted on: May 31st, 2016 by Ken Smith

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On May 18th, 2016 the Department of Labor (DOL) made huge changes to the Fair Labor Standards Act (FLSA) which take effect on December 1, 2016.  The changes increase the minimum employee salary required in order for an employee to be exempt from FLSA overtime requirements.

What this means to employers is that fewer employees will be exempt from overtime.

To be in compliance employers will either have to start paying overtime to newly non-exempt employees or increase their wage to the new 47,476 annual salary minimum.

  1. Salary-level test – An employee may be exempt from overtime requirements if his salary exceeds 47,476 per year and he meets the other two criteria. Or are highly compensated employees with income of more than 134,004.
  2. Salary-basis test – An employee may exempt for overtime requirements if they receive a pre-determined amount of compensation per pay period.
  3. Duties test – An employee may be exempt for overtime requirements if their duties are administrative, executive, or professional.

To recap the three tests to be exempt: employees with salaries below 47,476 must get overtime.  Those with salaries above 134,004 are exempt from overtime.  Those with salaries in between 47,476 and 134,004 may be exempt if the meet all three tests.

In conclusion, the overtime rules have changed.  Employers will now either raise wages to make workers exempt or reduce wages so that the new reduced wages plus overtime is the same as the previous wages, or hire two part-time workers to fill the task of one full time worker in order to meet the overtime exemption requirements.  Which option works best for your company will be determined by your unique employee situation and workload needs.

To schedule an appointment to implement this strategy and others within the context of your unique tax situation, Contact Brown CPA Group, Ltd., at (847) 509-4100.

About the author: Ken Smith is an Enrolled Agent and Senior Staff Accountant with Brown CPA Group, Ltd.  We know that success means different things to different people. While a business owner strives to maximize profits, increase efficiency and plan for succession; an individual client is more concerned with tax planning, wealth management, retirement and estate planning. At Brown CPA, we work with you on the total picture. Together, we succeed.

Contact your BCPA Tax Professional for help. We’d love to hear from you.

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