New overtime rules - summarized in one page - Smith Conley & Associates, PC

The new rules become effective December 1, 2016.

That date is correct. December 1, 2016, not January 1, 2017. This is your first indication that the new rules have a noble purpose but have great negatives for small business. Although it would be far more logical to start new payroll rules effective January 1 (at the beginning of everyone’s payroll year), this is the US government we’re talking about; so we should not expect a logical approach.

This is not a blog that is against overtime; it is a well-researched comment about federal agencies passing rules without considering their consequences. The rules are established by the Fair Labor Standards Act, which establishes minimum wages, overtime pay and record-keeping requirements.

The FLSA does not require: vacation, holiday, severance, or sick pay; meal or rest periods, holidays off, or vacations; premium pay for weekend or holiday work; pay raises or fringe benefits; or a discharge notice, reason for discharge, or immediate payment of final wages to terminated employees. Yet, (in spite of not addressing the above areas), they claim to know better than you, the employer, the amount of value an employee brings to your business.

Let’s take a look at how this law is going to impact the small business owner, and then we’ll cover who might be exempt from the requirements. This video is the best explanation of the law’s effects that I’ve seen and worth your time to view. The share buttons (at the top of your screen) can be used to pass this along to your friends.

Companies are exempt from the FLSA if they:

Have annual sales less than $500,000 unless engaged in interstate commerce (Don’t get overconfident here. The DOL defines “interstate commerce” a whole lot differently from the way you or I do); or
Are engaged in the operation of a hospital, an institution primarily engaged in the care of the sick, the aged, or the mentally ill who reside on the premises; a school for mentally or physically disabled or gifted children; a preschool, an elementary or secondary school, or an institution of higher education (whether operated for profit or not for profit); or
Are an activity of a public agency (this does not automatically exempt you if you are a non-profit corporation).

The new rules require overtime pay at 150% of regular pay for total work hours in a week in excess of 40 for employees earning less than $47,476 annually. Many people incorrectly believe the rules are applied per pay period work requirement-they are not-they are applied per 40-hour week.

Exemptions from Overtime Pay Only:

Certain commissioned employees of retail or service establishments; auto, truck, trailer, farm implement, boat, or aircraft sales workers; or parts clerks and mechanics servicing autos, trucks, or farm implements, who are employed by non-manufacturing establishments primarily engaged in selling these items to ultimate purchasers;

Employees of railroads and air carriers, taxi drivers, certain employees of motor carriers, seamen on American vessels, and local delivery employees paid on approved trip rate plans;

Announcers, news editors, and chief engineers of certain non-metropolitan broadcasting stations;

Domestic service workers living in the employer’s residence;

Employees of motion picture theaters; and

Farmworkers. Employees who are employed in agriculture as that term is defined in the Act are exempt from the overtime pay provisions. They do not have to be paid time and one half of their regular rates of pay for hours worked in excess of forty per week. Agriculture includes farming in all its branches when performed by a farmer or on a farm as an incident to or in conjunction with such farming operations. Agriculture does not include work performed on a farm which is not incidental to or in conjunction with such farmer’s farming operation. It also does not include operations performed off a farm if performed by employees employed by someone other than the farmer whose agricultural products are being worked on.
Pre-existing conditions (see this link) will still apply.

DOL Rules with unforeseen circumstances – small business effects.

Rule 1-Layers of record-keeping from DOL with mandatory time-keeping
Does your small business keep time records for every employee? Effective 12/1/2016, it better, or it will face a severe DOL fine.

Here is some information directly from the DOL guide:

The Department of Labor tells us that there is no requirement to maintain time clocks for employees. (Good luck with that argument in an audit!). Nothing in the FLSA or in the regulations governing the white-collar exemptions requires employers to pay overtime-eligible employees on an hourly basis.

Overtime-eligible workers are not required to punch a time clock. The FLSA requires that employers keep certain records for each non-exempt worker. That’s so workers can be sure that they get paid the wages that they earn and are owed. Employers have options for accounting for workers’ hours – some of which are very low-cost and burdensome. The recordkeeping requirements provide that an employer must keep an accurate record of the total number of hours worked for each day in a pay period to ensure that an employee is fully compensated for all hours worked.

Can anyone tell me how an employer can “keep an accurate record of total number of hours worked” without a time clock? Do you want to argue this with a DOL auditor? Summary: Every small business needs to implement time-keeping systems December 1, 2016.

Pay particular attention to remote workers who work from home! This area has the potential to explode on you in the near future.

Rule 2-Destruction of a particular small-business employee benefit-no more comp time.
The FLSA provides that most covered employees must receive overtime pay for hours worked over 40 in a workweek at a rate not less than one and one-half times their regular rate of pay. The use of compensatory time (“comp time”) instead of overtime pay is limited by the FLSA to a public agency that is a state, a political subdivision of a state, or an interstate governmental agency, under specific circumstances. Private employers cannot satisfy their overtime obligations by providing comp time and must pay overtime-eligible employees an overtime premium for hours over 40 in a work week.

Example : Like many small businesses, John Doe, Inc. has always allowed employees to work extra to offset time taken off for doctor or personal appointments, kid’s school events and similar offsetting compensatory but small business benefiting “perks”. Under the FLSA rules the employees are no longer allowed to work more than 40 hours in a week to offset this benefit. If employee hours exceed 40 hours in a week, John Doe must pay time and ½ even though the employee has received a family benefit. Because the company will not pay extra to provide this benefit, employees are no longer allowed to work compensatory time in a week other than the week of time taken off.

As the deadline approaches, we see DOL softening on some of their positions. Small churches and other non-profits can actually have salaried but non-exempt employees (i.e., employees whose salary is less than the required $47,476, but who will receive overtime pay for hours in excess of 40 per week). Certain safeguards are required but you will be able to exempt your employees from detailed time records with this method.

We are learning new things about this law every month – so stay tuned for updates. You can receive these automatically via email by registering at the Get Updates area at the end of this post.

Remember that you don’t have to fight this IRS battle alone. You can click the link below to contact us with questions after you’ve read this post.

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David Conley

David is a partner at Smith, Conley & Associates, PC. In addition to writing and tax consulting, he is active in the pro-life community serving as President of the Fayette County Right to Life chapter of Georgia Right to Life.
He is also a founding Board Member and Finance Director of the Fayette Pregnancy Resource Center and serves on the Board of the National Equal Rights Institute.