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  • On April 29, 2024, the U.S. Department of Labor (DOL) finalized a rule reversing a Trump-era regulation designed to expand the formation and use of Association Health Plans (AHPs), without having to comply with the requirements of the Affordable Care Act (ACA). AHPs are group health plans that cover small employers and self-employed individuals in the same or different industries. AHPs, which are governed by state and federal laws, have historically varied significantly in size and membership.

    The 2018 Trump Administration Rule

    The 2018 rule from the Trump administration that expanded AHPs was struck down by a federal judge in 2019 and was never fully implemented. The DOL stated the 2018 rule expanded the definition of AHPs in a way that would have allowed some individual and small group health insurance coverage to be treated as large group coverage. This change could potentially evade critical consumer protections under the ACA, which requires coverage of essential health benefits such as emergency and maternity newborn care.

    The New Final Rule

    The new final rule from the Biden administration, issued by the DOLs Employee Benefits Security Administration, will take effect 60 days after its April 30th publication. It is intended to ensure consumers have access to quality health coverage consistent with federal law, including the ACA’s requirements for essential health benefits.

    While some proponents of the AHP argue they can provide small businesses and self-employed individuals with better bargaining power and lower prices, critics contend the 2018 rule would have undermined important ACA consumer protections. The new rule has been supported by the Biden administration but criticized by some Republican lawmakers as limiting workers’ health care options.

    Managing These Changes

    GMS can help your company stay compliant with the DOL’s new rule on AHPs and managing the associated challenges. Our team of HR and benefits experts can assist with analyzing your current health care plan offerings, determining the appropriate compliance requirements, and implementing necessary changes to ensure you are providing employees with quality, ACA-compliant coverage.

    In addition, we provide guidance on navigating legal and regulatory uncertainties, training programs for managers and employees on the new rules, and ensuring your benefits administration processes are updated. By partnering with GMS, you can confidently navigate these complex regulatory changes and avoid potential penalties or disruptions in your employee health benefits. Contact us today to learn more.

  • The U.S. Department of Labor (DOL) announced a final rule, defining and eliminating the exemptions for executive, administration, professional, outside sales, and computer employees. This will take effect on July 1, 2024. The final rule updates and revises the regulations issued under section 13(a)(1) of the Fair Labor Standards Act (FLSA) implementing the exemption from minimum wage and overtime pay requirements for these employees.

    The revisions to the overtime exemption regulations include:

    • Increases to the standard salary level
    • Increases to the highly compensated employee total annual compensation threshold
    • A mechanism that provides for the timely and efficient updating of these earnings thresholds to reflect current earnings data

    Which Employees Are Exempt?

    Employees are exempt from the FLSA’s minimum wage and overtime protections if they are employed in a bona fide executive, administrative, or professional (EAP) capacity. To be within the EAP exemption, an employee must meet three tests:

    1. Be paid a salary, meaning they are being paid a predetermined and fixed amount that is not subject to reduction because of variations in the quality of work performed.

    2. Be paid at least a specified week salary level.

    3. Primarily perform executive, administrative, or professional duties, as provided in the department’s regulations.

    The regulations also include an alternative test for certain highly compensated employees. These workers must be paid a salary, earn above a higher total annual compensation level, and satisfy a minimal duties test to qualify for the highly compensate employee exemption. This alternative pathway provides a different set of criteria for classifying highly paid workers as exempt from overtime requirements.

    Key Dates To Note

    The final rule will raise the standard salary level and the highly compensated employee total annual compensation threshold on two key dates. The first increase will take effect on the rules effective date July 1, 2024. A second set of changes for these thresholds will then become applicable on January 1, 2025.

    The final rule includes a mechanism for regularly updating these earnings levels every three years. This will ensure that the exemption criteria keep pace with the current salary data over time.

    Navigating Compliance With Labor Laws

    Staying on top of ever-changing employment laws and regulations can be a challenge for small to mid-sized businesses. That’s why GMS’ team of HR experts are here to help! We closely monitor regulatory updates and provide guidance to ensure our clients remain compliant. By partnering with GMS, small business owners can focus on growth and success while we handle the complexities of workforce management. Contact our experts today!

  • June 30th, 2023, has come and gone, but here’s some good news – the Family and Medical Leave Act (FMLA) forms with an expired date is still valid, according to the U.S. Department of Labor (DOL). So, if you’re an eligible employee of a covered employer, you can still utilize these forms for your family and medical leave needs.

    The FMLA provides an important safety net for employees by allowing them to take unpaid, job-protected leave for various family and medical reasons. Whether it’s due to pregnancy, chronic health conditions, or the care of a family member with a serious health condition, this act ensures that your job is secure while you attend to these important matters.

    Employers rely on these forms to comply with the FMLA notice requirements and request medical certification from your health care provider. In addition, the DOL has clarified that the five optional-use forms they provide are still applicable, regardless of the expiration date mentioned on them. The content of the information contained within these forms remains relevant and useful, regardless of its expiration.

    What Employers Should Know 

    The DOL is obligated to review these forms and notices every three years, ensuring that they meet the required standards. While employers are not obligated to use the DOL’s forms, they can serve as excellent models. Employers can create their own version if they include the same essential notice information and require the same basic certification details. Many employers customize the DOL-recommended forms to align with their specific state laws, allowing for greater flexibility and accuracy.

    In addition, it’s important to note that employers must accept any complete and sufficient certification that supports an employee’s need for FMLA leave, regardless of the format it’s presented in. This means that your employer cannot reject the following:

    • A fax copy of the certification
    • A certification that is not completed on their standard company form 
    • Any other medical documentation, such as communication from your health care provider on their letterhead

    If the certification contains all the necessary information to determine if the leave qualifies under FMLA, an employer cannot refuse it.

    Frequently asked questions and answers about the revisions to the FMLA can be found by clicking here.

    What Employees Should Understand

    As an employee, you may be wondering what this means for you. Think of it this way: If you’re in a situation where you need to take FMLA leave, rest assured that the forms you have are still perfectly valid. Remember, the FMLA protects your rights and ensures you can attend to your family and medical needs without fearing job loss. Take advantage of this opportunity and communicate openly with your employer about your situation.

    Have You Considered Partnering With A PEO? 

    A professional employer organization (PEO) can be a valuable resource when it comes to navigating the complexities of the Family and Medical Leave Act (FMLA). Determining employee eligibility for FMLA leave can sometimes be challenging, especially for small business owners.

    A PEO such as GMS specializes in HR employment-related matters, including compliance with labor laws such as the FMLA. Our HR experts stay up-to-date with the latest regulations and can ensure that your company’s FMLA policies and practices align with legal requirements. In addition, we can help you develop comprehensive FMLA policies and procedures tailored to your company’s specific needs.

    In addition, managing FMLA paperwork, including forms and certifications, can be time-consuming. GMS’ HR experts handle the administrative tasks associated with FMLA leave, such as collecting and maintaining records, tracking leave usage, and ensuring proper documentation. This frees up your HR team to focus on other essential responsibilities.

    We’re here to make your life easier. We take all the administrative burdens off your shoulders so you can focus on other areas of your business. Get a quote today so we can make your business simpler, safer, and stronger.

  • On October 12th, 2022, the U.S. Department of Labor (DOL) published the final rule, “Temporary Agricultural Employment of H-2A Nonimmigrants in the United States,” effective on November 14th, 2022. This final rule amends the Department’s regulations governing the H-2A program to improve worker protection and enhance enforcement against fraud. In addition, it modernizes the H-2A application and temporary labor certification process. The final rule ultimately does the following:

    • Strengthens protections for U.S. workers and H-2A workers
    • Enhances program integrity and enforcement capabilities of the Office of Foreign Labor Certification and the Wage and Hour Division
    • Modernizes the prevailing wage determination process
    • Provides clarity to employers and other stakeholders

    Understanding The H-2A Agricultural Program

    Through the H-2A temporary agricultural program, agricultural employers can hire nonimmigrant foreign workers to perform temporary or seasonal agricultural labor or services in the U.S. Employment is determined to be seasonal nature when the job is tied to a specific time of year by an event or pattern such as a short annual growing cycle. Temporary employment is when the employer needs to fill a position with a temporary worker who won’t last longer than one year.

    In addition, the DOL must determine that:

    • There are not sufficient able, willing, and qualified U.S. workers available to perform the temporary and seasonal agricultural employment for which nonimmigrant workers are being requested,
    • Employment of H-2A workers will not adversely affect similarly employed U.S. workers’ wages and working conditions. The statute and Departmental regulations provide worker protections and employer requirements concerning wages and working conditions.

    Deep Dive Into The Provisions

    In the final rule issued by the Biden administration, all provisions intended to improve the program’s flexibility and effectiveness were removed except for the electronic filing requirement. The final rule shows that the DOL focuses on worker treatment, protecting the U.S. workforce, and increasing enforcement, but several measures that would have benefited employers are missing.

    The following are key provisions of the final rule:

    • Mandatory e-filing
    • Joint employment
    • Housing standards and inspections
    • Expanded prevailing wage surveys

    What This Means For Small Business Owners

    When you partner with GMS, we ensure you stay ahead of any legislative changes that may impact your business operations. We understand how challenging it can be to wear multiple hats at once. The last thing you need is to receive a hefty fine for something that could have been avoided. Allow GMS to take on the administrative functions of your business that you don’t have the time or expertise to handle. Contact us today. 

  • Running a business is complicated enough. Having to deal with wage and hour violations only makes your ability to grow your business even more difficult.

    The majority of businesses in the U.S. are subject to the rules and regulations set by the Fair Labor Standards Act (FLSA). These rules establish standards for minimum wage, overtime pay, recordkeeping, and youth employment compliance.

    While these rules are designed to protect employees, it’s not always easy for employers to keep track of and apply these rules. It’s very easy for a simple, honest mistake to lead to an FLSA violation, which is why businesses should take the time and effort to conduct internal audits to identify any potential issues.

    Why Should Businesses Conduct Internal Wage And Hour Audits?

    The biggest reason to complete internal wage and hour reviews is quite simple – FLSA noncompliance is expensive. Violations can range from $1,000 to $10,000 each. In addition, FLSA violations could end up costing businesses in a couple of other ways. 

    According to the U.S. Department of Labor (DOL), the Wage and Hour Division took more than 24,700 compliance actions against businesses in 2021. Those actions led to more than 190,000 workers earning more than $230 million in back wages. This results in non-compliant companies owing an average of $1,211.70 in back wages for affected employees.

    In addition to back wages, financial penalties make FLSA violations even more costly for a business. The DOL will fine any company that willfully or repeatedly violates minimum wage or overtime pay requirements. These penalties include civil fines up to $1,000 for each violation.

    Repeated violations can also make a business a common target for future audits. The DOL chooses targets for wage and hour audits as part of an overall initiative or because individuals have filed complaints against a specific business. By failing an audit, the DOL has reason to check in on your business in the future for additional violations.

    An FLSA Audit Checklist

    A thorough FLSA audit includes multiple steps. Each of these steps is designed to provide a comprehensive overview of who is covered by the FLSA as well as, the different factors that can lead to violations.

    1. Review employee classifications
    2. Review regular and overtime pay calculations
    3. Review records and policies

    Employee classifications

    The first step of auditing your wage and hour practices is to examine the exemption status for all your employees. It’s essential to properly classify each employee to determine their exact employment status and whether or not they’re eligible for overtime.

    Employers conducting an audit should create a list that includes every employee. The safest way to start is to assume that every employee is eligible for overtime until proven otherwise. This employee list should include the following information to help employers determine overtime exemption status:

    • Job titles
    • Job descriptions
    • Salary information

    Once armed with this information, employers can perform a trio of tests to determine whether employees qualify as exempt or not. If an employee passes all three tests, employers can assume that they are exempt from overtime pay.

    • The salary basis test – Exempt employees must be paid a predetermined, fixed salary that cannot be reduced.
    • The salary level test – Exempt employees must meet the minimum salary threshold of $35,568, which equates to $684 per week.
    • The duties test – Employees must primarily perform a list of set duties established by the DOL.

    The easiest way to determine exemption status is whether an employee is a blue-collar worker or not. Blue collar workers are eligible for overtime, regardless of their salary. Non-salary employees are also eligible for overtime.

    When it comes to “white-collar exemptions,” employers will need to review each employee’s title, job description, and current duties. The DOL lists five separate groups as exempt from overtime pay, which are explained in-depth in our post on navigating white-collar exemptions. If a white collar employee’s duties align with any of the following groups and pass the salary tests, they are exempt.

    • Executive
    • Administrative
    • Professional
    • Computer
    • Outside sales

    Pay calculations

    Once you’ve successfully separated exempt and non-exempt employees, it’s time to review your pay practices to ensure that everyone is being compensated properly. This phase involves confirming the use of proper pay practices and calculations.

    • Ensure all hourly workers are being paid at least $7.25 per hour (or more, depending on your city/state).
    • Confirm that all employees who earned overtime were paid at least one and one-half times their regular pay rate after 40 hours of work in a workweek.
    • Double check to see if there are any employees who work in two different positions at differing rates that require special pay calculations and timekeeping practices.

    Records and policies

    An internal audit is a good time to review your company’s timekeeping policies. The FLSA requires employers to maintain a variety of records pertaining to their employees’ wages and hours. As such, your audit should confirm that your business records the following information and that all recorded information is accurate:

    • Employees’ personal information which includes, name, home address, occupation, sex, and birth date if under 19 years of age.
    • Hour and day when workweek begins.
    • Total hours worked each workday and each workweek.
    • Total daily or weekly straight-time earnings.
    • Regular hourly pay rate for any week when overtime is worked.
    • Total overtime pay for the workweek.
    • Deductions from or additions to wages.
    • Total wages paid each pay period.
    • Date of payment and pay period covered.

    How Often Should I Conduct FLSA Audits?

    In general, it’s best to perform wage and hour audits at least once a year. For example, some organizations plan a regular internal audit timed with either the beginning or end of their fiscal or calendar year.

    Another option is to conduct ongoing reviews throughout the year. This process involves more regular check-ins for compliance concerns, such as employee classifications or overtime calculations for new employees. Employers can also combine a comprehensive yearly audit with quarterly inspections to be as proactive as possible about FLSA violations.

    Stacey Larotonda, Vice President of Client Services at GMS, emphasizes, “FLSA self-audits should be done by every business on a consistent basis. It’s an easy way to make sure you aren’t hit with a significant fine should the Department of Labor want to audit you. Spending a little time on the front end can save you lots of money in the long run.”

    Protect Your Business From FLSA Violations

    A simple timekeeping mistake is all it takes to land your company in trouble with the DOL. Internal FLSA audits are one tool that employers can use to protect their business from misclassification, timekeeping errors, and other challenges. However, sometimes business owners can use some additional support.

    Simply put, most business owners don’t have the time to handle every tedious administrative task. GMS partners with businesses to help them simplify their core business functions. GMS provides your business with experts and a comprehensive web-based payroll solution to help you save time and protect your business against FLSA violations, wage and hour laws, and other costly issues. Our experts help business owners with:

    • Contractor vs. employee status
    • Recordkeeping
    • Overtime exemptions
    • Child labor

    Ready to streamline your payroll process and other HR tasks? Contact us now about how GMS can make your business a safer place.

  • A couple of weeks ago, prefaced by an op-ed piece written by President Obama, the Department of Labor issued new directives on overtime rules. As with most government regulations, however good the intention, the result on small business owners will be a creation of “additional costs and record-keeping headaches” according to the National Federation of Independent Business (NFIB).

    Find out how the Department of Labor’s new overtime rules may affect you.

    What the New Overtime Rules Mean for You

    At issue are exempt vs. non-exempt employees and the potential costs that will be created for small business owners. Under the old rules, any manager working over 40 hours were exempt from overtime pay as long as they earned more than $23,660 per year. Under the new rules, that threshold has been raised to $50,440, a 113% increase.

    While this may seem like a small and just issue, the ramifications are massive. In addition to the additional record-keeping now tied to tracking overtime hours for more employees, this will also have an impact on a small business owner’s profitability. Those who are already working on thin margins now have to factor in additional costs should their managers work more than 40 hours a week. Many of these people were given these positions and titles to help the employer control their costs. Under this scenario, managers can leave early without impact, but can benefit by working longer hours. One of the potential side effects will be the elimination of more salaried people.

    What this will also potentially do is limit promotion and managerial opportunities for lower income workers, the opposite effect of what the people supporting these laws were hoping for.

    Learn More from the Experts

    Are you not sure how these rules impact you? Do you have exempt and non-exempt employees and thought you had all of this figured out? If you don’t know or are unsure where to go to get answers, maybe a Professional Employment Organization can help. Contact us today to find out more.

  • The fiduciary rule has had a bumpy ride in the past few years. After initially going into partial effect in June of 2017 and targeting Jan. 1, 2018 for a full rollout, the move to have all financial professionals who work with retirement plans follow the same fiduciary ethics and standards was postponed until July 1, 2019. Now MarketWatch reports that the Fifth Circuit Court “struck down the Labor Department’s fiduciary rule” in a split decision Thursday, March 15, 2018.

    This may not be the end of the fiduciary rule, however. According to Forbes Contributor David Trainer, the fiduciary rule may still make an impact even after being struck down. Trainer writes “While the ruling could end the Fiduciary Rule as law, it cannot erase the awareness the DOL [Department of Labor] raised, nor can it stop market forces leading the business towards a more ethical place.”  

    So, what does this mean for business owners? The fiduciary rule wasn’t designed to directly impact you as an owner, but it does affect the financial advisors connected to your business. Here’s a quick rundown of how the fiduciary rule can still make an impression on financial advisors and what that may mean for your business.

    Financial advisors for a small business 401(k) plan.

    What It Does

    According to Investopedia, the fiduciary rule “expands the ‘investment advice fiduciary’ definition under the Employee Retirement Income Security Act of 1974 (ERISA).” In simpler terms, it was designed to give financial professionals who work with retirement plans or offer retirement advice the same legal and ethical standards of a fiduciary.

    With this rule in place, retirement advisors would have more responsibility placed on them. According to Investopedia, the rule would leave “no room for advisors to conceal any potential conflict of interest,” which would include stating “all fees and commissions for retirement plans and retirement planning advice must be clearly disclosed in dollar form to clients.”

    Even though the rule has been struck down for now, it may not be dead quite yet. Trainer notes in his Forbes piece that the DOL could start on a new rule addressing the matter or request a stay in the Fifth Circuit Court’s ruling. The Wall Street Journal reports that the U.S. Securities and Exchange Commission is also “close to proposing rule requiring new disclosures on financial advice.” Even without going into effect, Trainer suggests that the fiduciary rule has raised awareness of fiduciary responsibility for owners and investors.

    What It Means for Owners

    Fiduciary responsibility can be intimidating, especially if you aren’t well versed in the legal responsibilities associated with 401(k) management and other financial decisions. The push for the fiduciary rule can help ease this burden by placing more of this responsibility on your financial advisors. However, it may lead some advisors to pull away from managing 401(k)s for businesses because it places more scrutiny on them. 

    Fortunately, there are other options that can take a lot of the fiduciary responsibility off your plate. By having a Professional Employer Organization like GMS manage your 401(k), you’re able to offload a lot of the financial risks associated with the plan. This includes financial transaction risk, as we’re responsible for making sure that money gets remitted to the financial institutions. We deduct that money out your payroll and send it directly to Transamerica, our record keeper. We’re also responsible for maintaining plan documents and making sure they stay compliant. If something happens, like an IRS restatement, we’re the ones responsible for applying it, not you.

    The exact form of the fiduciary rule may change, but financial responsibility can always be problematic for an owner. Contact GMS today to talk to one of our experts about how we can help your business manage its 401(k) plans so that we can take on that responsibility for you. 

  • The 50-employee mark is more than just a milestone; it’s also an important number for some major regulation requirements. Once your business has 50 full-time employees, various federal and state laws become mandatory, which can wreak havoc on your business if you don’t prepare for them. Here’s what your business needs to do to stay compliant once it reaches 50 full-time employees.

    Multiple employees during a training session at an applicable large employer.

    Health Insurance

    While smaller businesses can choose to offer health insurance, it becomes a requirement once your business reaches 50 or more full-time or full-time equivalent employees. At that point, the Affordable Care Act designates your business as an applicable large employer (ALE).

    Any ALE is required to meet the employer shared responsibility provisions found in the Affordable Care Act. These provisions give ALEs two options:

    • Offer health coverage that the ACA deems “affordable and provides “minimum value” to full-time employees and their dependents
    • Make a payment to the IRS any of the ALE’s full-time employees receive a premium tax credit for purchasing individual coverage on a Health Insurance Marketplace

    In addition to offering coverage – or opting to not offer coverage and pay penalties – ALEs are required to report to the IRS about their health care coverage. This means every ALE must file both Form 1095-C and Form 1094-C to the IRS, as well as a similar statement for each full-time employee.

    Determining full-time equivalent employees

    You may have noticed that threshold to be considered an ALE was set at 50 full-time or full-time equivalent employees. This means that you don’t need 50 strictly full-time employees to meet ALE designation if you have enough part-time individuals to qualify.

    Full-time employees include any worker who averages at least 30 hours of service per week in a calendar month. Full-time equivalent employees are a combination of individuals who do not meet full-time specifications, but whose combined work is determined to equate to that of a full-time worker.

    Per the IRS, there is a two-step process to determine the number of full-time equivalent employees at your business.

    1. Combine the number of hours of service of all non-full-time employees for the month (do not include more than 120 hours of service per employee)
    2. Divide the total by 120

    The total number represents a company’s number of full-time equivalent employees. That total would then be added to the number of regular full-time employees. If the combined number is at least 50 – for example, 40 full-time employees and 10 full-time equivalent employees – your business is considered an ALE.

    Family Medical Leave Act (FMLA)

    Unlike the Affordable Care Act, the Department of Labor (DOL) does not look to full-time and full-time equivalent employees to determine which businesses must comply with FMLA. Instead, the DOL simply writes that “private employers with at least 50 employees are covered by FMLA.” FMLA also applies to businesses with fluctuating workforces as long as they had at least 50 employees for 20 or more total workweeks in the current or previous year. These employees must then meet the following stipulations to be eligible for FMLA:

    • Work for the employer for at least 12 months
    • Work at least 1,250 hours during the 12 months before the start of leave
    • Work at a jobsite where the employer has at least 50 employees within 75 miles

    If eligible, employees are entitled to take unpaid, job-protected leave for various permissible reasons. These include taking up to 12 weeks of leave in a 12-month period for the following:

    • The birth of a child and to bond with the newborn child within one year of birth
    • The placement with the employee of a child for adoption or foster care and to bond with the newly placed child within one year of placement
    • A serious health condition that makes the employee unable to perform the functions of his or her job
    • To care for the employee’s spouse, son, daughter, or parent who has a serious health condition

    FMLA Compliance requirements

    Covered employers must also take steps to notify employees about FMLA rights. The first step is to display an FMLA poster prepared by the DOL at all locations. The next is to provide general notice with the same information as the poster in the employee handbook. If no handbook exists – and it absolutely should – employers must distribute a general notice to all employees and any new individuals when hired.

    As expected, the FMLA has penalties in place for any employers who meet the 50-employee threshold who deny or interfere with permitted leave or fail to meet notification requirements. Updated penalty amounts can be found on the DOL website.

    Miscellaneous State Laws

    Only looking to federal requirements can land your business in hot water. Certain states have their own regulations for businesses once they reach the 50-employee threshold. One of the more notable examples is that New York employers with 50-plus full-time employees must give at least 90 days’ written notice for mass layoffs, employment losses, or relocations. This law is a variation of the federal Worker Adjustment and Retraining Notification Act (WARN), which only applies to businesses with at least 100 employers. As a result, you’ll want to consult with your state government’s site to review any local laws that go into effect at the 50-employee threshold.

    Prepare Your Growing Business

    Growth is great, but it can become a major problem if you aren’t prepared for the additional compliance concerns and internal responsibilities. More employees mean more time spent handling payroll management, benefits administration, and other key HR needs – unless you find a partner that can manage these critical functions and save you much-needed time.

    Whether you’re a startup or a 50-plus employee business, Group Management Services provides professional HR management to help you make your business simpler, safer, and stronger while you focus on ways to grow your company. Contact us today to talk to one of our experts about what we can do to help you protect your company now and prepare for the future.

  • The Department of Labor announced a proposal in early March to change the salary-level threshold for white-collar exemptions. This move comes more than two years after a federal judge blocked another attempt to update the threshold for overtime eligibility, although the details of the proposal differ from the 2016 proposal.

    The current salary-level threshold for white-collar exemptions is $23,600 annually, which equates to $455 per week. The DoL’s new proposal seeks to increase the threshold to $35,308 annually ($679 per week) – nearly halfway to the DoL’s 2016 target threshold of $47,476 ($913 per week).

    While the new proposal is notably lower than the blocked attempt, it still marks a nearly 50 percent increase from the current wage threshold. As a result, the DoL “estimates that 1.1 million currently exempt employees who earn at least $455 per week but less than the proposed standard salary level of $679 per week would, without some intervening action by their employers, become eligible for overtime.” That’s a notable change that can have a direct impact on your employee’s compensation.

    Businessman contemplating options regarding the new salary-level threshold proposal from the Department of Labor. 

    Breaking Down the New Overtime Salary-Level Threshold

    The quick explanation of the new proposal is that employees who make less than $35,308 annually or $679 per week may be eligible for overtime pay. Overtime applies to any hours worked past 40 in a given week and will be compensated at a rate of one-and-a-half times an employee’s standard rate of pay. 

    Not all employees would be eligible for overtime pay, however. The job duties of an employee play a major part in deciding whether someone is eligible. As with the current salary-level threshold, employees must pass three tests to qualify for a white-collar exemption from overtime pay:

    • The salary basis test – Exempt employees must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed
    • The salary level test – Exempt employees must be paid at least a specified weekly salary of $679 per week
    • The duties test – Exempt employees must primarily perform executive, administrative, or professional duties as defined by DoL regulations (duty definitions can be found on the DoL website)

    The new proposal also increases the salary level for “highly compensated employees” (HCE) from $100,000 to $147,414 per year. This group faces what the Society for Human Resources Management (SHRM) calls a “relaxed” duties test. As such, these employees are exempt from overtime if their primary duty is office or nonmanual work and routinely “perform at least one of the bona fide exempt duties of an executive, administrative, or professional employees.”

    It’s important to note that the term “white-collar exemptions” is used, as the new proposal maintains overtime protections for “blue collar” workers who perform tasks that involve “repetitive operations with their hands, physical skill and energy.” This includes no changes in overtime eligibility for any of the following professions:

    • Police officers
    • Fire fighters
    • Paramedics
    • Nurses
    • Laborers
    • Non-management employees in maintenance, construction, and similar occupations (carpenters, electricians, mechanics, etc.)

    Another difference with the new proposal is that there are no plans to make automatic threshold updates in the future. This is a notable departure from the 2016 proposal, in which the threshold would change every three years to match the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region. This means that if the proposal were to go into effect, it would only lead to the $35,308 ($679 per week) threshold and not any pre-planned adjustments.

    What Can Small Business Owners Do About the New Overtime Proposal?

    It’s currently a waiting game to see whether this new DoL proposal will go into effect or not. Like the 2016 proposal, the new salary-level threshold could run into some roadblocks. Despite this, it’s best to plan ahead just in case the proposal becomes reality. 

    Your options are largely the same as they were back in 2016, some of which may be more feasible than others for your company. The first is to pay newly-eligible employees overtime pay for applicable hours. Another is to limit employee hours to 40 per week to stop any chance of overtime pay. Each route has drawbacks, as paying overtime will increase your payroll and limiting hours may lead to decreased productivity thanks to change in overall work hours. 

    If neither of those ideas sound appealing, there are some other alternatives. One possible way to mitigate the impact of overtime pay is to raise the wage of workers who are close to the salary-level threshold. For example, if an employee regularly worked extra hours makes $34,000 per year, you could increase his pay to $36,000 per year. You’ll need to do the math to see if the change in pay outweighs the potential costs of overtime, but this method can help you control costs while still offering some reward to an employee.

    A more cost-effective, but less popular, alternative is to lower the salaries of newly-eligible overtime employees. This will help you account for overtime costs, but employees won’t approve of decreased pay if they’re eligible for overtime.

    Protect Your Business Through Preparation

    It’s important to take any proposed regulations seriously, especially when you can face a civil monetary penalty of $2,014 for repeated or willful violations of overtime rules occurring after Jan. 24, 2019. There are still plenty of steps the DoL’s new proposal needs to take, but it’s always good to have a plan in place just in case.

    Unfortunately, there’s not always the time or means to stay ahead of new regulations or other changes that could impact your business. That’s why small business owners turn to GMS to help them stay compliant with current laws and prepare for future legislation and regulations. Our team of experts and integrated HR system allows us to take on the administrative burden of small business payroll management and other crucial human resources tasks.

    Ready to prepare for your business’ future. Contact us today to talk to one of our experts about how we can help.

  • With recent changes to the Fair Labor Standards Act (FLSA), many business owners – and their employees – are trying to figure out exactly who qualifies as exempt from overtime pay under the new rules. Unless you’re ready to dig into Department of Labor (DOL) fact sheets and other documents, it’s not always clear just what counts as white collar exemption these days. To help, we’ve put together a breakdown of these exemptions to help you properly classify your employees.

    A group of white collar exempt employees at a business.

    What Qualifies White Collar Employees to be Exempt?

    There are three tests that employees must pass in order to classify them as exempt.

    • The salary basis test – Exempt employees must be paid a predetermined and fixed salary that is not subject to reduction because of variations in the quality or quantity of work performed
    • The salary level test – Exempt employees must meet the threshold for minimum weekly salary
    • The duties test – Exempt employees must primarily perform a list of set duties

    The thresholds for the salary level changed as of Jan. 1, 2020. In the past, the minimum salary threshold was $455 per week. The recent rule changes officially raised the threshold to $684 per week. That equates to a $35,568 annual salary, 10 percent of which can come via nondiscretionary bonuses, incentives, and commissions that are paid out each year or more frequently. 

    There are also separate stipulations for “highly compensated employees” (HCE). The salary threshold for this group raised from $100,000 to $107,432 per year. Unlike other employees classified as exempt, HCEs face a “relaxed” duties test according to the Society for Human Resources Management (SHRM).

    The Different Exempt Employee Classifications

    While the salary thresholds have changed, the employee classifications listed as exempt have not. These classifications are not based on job titles. Instead, certain types of duties are used to mark an employee for exemption. The DOL lists the following groups as exempt, each with their own duties tests.

    • Executive
    • Administrative
    • Professional
    • Computer
    • Outside sales

    Executive Exemption

    To be considered an executive employee, a person must manage an enterprise, or a recognized department or subdivision of that enterprise, as his or her primary duty. This definition also states that an executive employee must regularly oversee and direct at least two or more full-time employees (or the equivalent in part-time employees). In addition, this employee must have some influence on hiring or firing other employees, whether he or she can outright terminate employees or can influence decisions related to any other type of status change for other employees. There is also a stipulation that any employees who are actively engaged in management and own at least 20 percent equity interest in the enterprise in their place of employment are considered exempt.

    Administrative Exemption

    Administrative employees are judged by a pair of tests. First, the employee must primarily perform office or non-manual work that is directly related to management or general business operations. Second, administrative employees must “exercise of discretion and independent judgment with respect to matters of significance” which refers to the level of importance or consequence of their primary duties. This discretion and judgment implies that an administrative employee evaluates various courses of action and has authority to decide which is best for the business.

    Professional Exemption

    The DOL has guidelines for two different types of exempt professional employees: learned professionals and creative professionals. Learned professionals must primarily perform work that requires “advanced knowledge.” This knowledge involves work that requires consistent discretion and judgment and must be “predominantly intellectual in character.” The DOL also stipulates that this knowledge be in a field of science or learning. As for creative professionals, their primary work should require a form of invention, imagination, originality, or talent in a recognized artistic or creative field.

    Computer Exemption

    Employees classified under the computer exemption are those employed as a systems analyst, programmer, software engineer, or some other type of skilled individual who operates in the computer field (not including manufacturing or repair). The DOL also stipulates that these employees’ primary duties involve one or more of the following tasks.

    • The application of systems analysis techniques and procedures to determine hardware, software, or system functional specifications
    • The design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes based on and related to user or system design specifications
    • The design, documentation, testing, creation, or modification of computer programs related to machine operating systems

    Outside Sales Exemption

    Unlike the other classifications, the FLSA’s salary requirements do not apply to outside sales employees. To be considered part of this exemption, an employee’s primary duty must involve either making sales or obtaining orders/contracts for either services or for the use of facilities. In addition, an outside sales exempt employee must regularly work outside of his or her employers place(s) of business.

    Why is it So Important to Correctly Classify Exempt Employees?

    Employee misclassification can lead to a series of issues. Not only can misclassification impact the compensation for certain employees, it can also affect benefit plan eligibility, payroll taxes, and other crucial details. Not only can these mistakes be a huge issue for your employees – Joe Schmo from the warehouse won’t be thrilled if he’s classified as exempt – you’re putting your business at risk with the law as well.

    There are serious financial consequences if the Bureau of Workers’ Compensation (BWC) finds out that you’ve misclassified employees. There are a variety of potential penalties you can face depending on the severity of the situation:

    • The collection of unpaid wages
    • Back taxes
    • Additional penalties for failing to deduct and withhold taxes for misclassified employees
    • Punitive damages from lawsuits for unpaid wages and taxes

    In addition to the initial penalties, you can bet that you’ll end up on the BWC’s radar. Businesses that misclassify employees are known as potential repeat offenders, which means that these penalties will make it more likely for the Department of Labor and OSHA to audit your business in the future, even if the initial misclassification was the result of a simple mistake.

    Protect Your Business from Misclassification Mistakes

    Proper employee classification is very important, but it’s not necessarily easy to make the right call for every employee if you haven’t spent the time necessary to learn all the appropriate classifications. Meanwhile, you still have a business to run even after you’re done trying to figure out tedious HR management tasks.

    While you may not have extensive HR expertise, the experts at GMS do. In addition to helping you avoid costly misclassification issues, we can help you simplify and strengthen your business through payroll management, employee benefits administration, and other crucial tasks. Contact GMS today to talk to us about how we can help you save precious time and protect your business through professional HR management.