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  • 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.

  • After some big changes in 2019, it’s apparent that New Jersey takes wage theft very seriously. The state adopted the new Wage Theft Act (WTA) and amended its Wage and Hour Law back on Aug. 6, 2019, giving it some some of the toughest laws in the nation regarding wage and hour enforcement.

    The new WTA has a direct impact on business owners in New Jersey, but it’s important for those outside the state to be aware of the updates as well. The Garden State is a common testing ground for legislative changes, so other states may adopt similar laws over time. As such, let’s break down exactly what New Jersey’s wage and hour enforcement laws mean for business owners (and what they can do to avoid issues).

    A small business owner’s hand caught in a trap after attempting wage theft.

    How the WTA Impacts Business Owners

    The adoption of the WTA places a lot more pressure on employers when it comes to correctly paying wages to employees. Simply put, the new rules are clearly designed to discourage owners from committing wage theft – and severely punish those who do, unwittingly or not. There are a few notable takeaways that owners should know:

    The WTA increases how much employees can earn back

    Employers who owe workers will have to pay back more to the affected employees than in the past. These employees can claim increased damages for any missing overtime or other hours, which can total up to 200 percent of the unpaid wages in addition to the original pay. That means employers can be on the hook for three times back wages. Employers found guilty of wage theft may also have to pay reasonable costs and attorney fees for the affected employee, making the situation even more costly.

    The WTA increases the statute of limitations for back pay

    Previously, any claims for missing pay had to be made within two years of the incident. The WTA tripled that window, which means that aggrieved workers can now fight for back pay within a six-year time period.

    The WTA offers more protection against retaliation

    The new legislation makes a concerted effort to protect employees when they inquire about missing pay. Any adverse action – including discipline, demotion, or termination – made within 90 days of a complaint about their pay is automatically presumed to be a form of retaliation. The employer can appeal this presumption, but will need “clear and convincing evidence” to successfully argue that the adverse action was justified and not made in retaliation. Employers found guilty of retaliation must make right by the affected employee, which can include reinstating that person to his or her position if fired or demoted.

    The WTA enacts harsher financial and criminal penalties

    Not only does the WTA make it easier for employees to claim back pay, it also drops the hammer on businesses to deter them from making the same mistake again. Wage theft can result in both a notable fine and jail time, with increasing punishments for repeat offenders. The penalties are as follows:

    • First violation – $500 to $1,000 fine, imprisonment of 10 to 100 days, or both
    • Second violation – $1,000 to $2,000 fine, imprisonment of 10 to 100 days, or both
    • Third and subsequent violations – The employer is charged with a fourth degree crime and faces a $2,000 to $10,000 fine, imprisonment of up to 18 months, or both

    The WTA adds joint liability

    With the new rules, employers may also get in trouble even if they themselves didn’t commit wage theft. Violations committed by hired contractors make a business jointly responsible if any of these contractors commit anything deemed as wage theft or retaliation.

    Potential Danger Areas for Wage Theft

    Regardless of whether a discrepancy in an employee’s wages is a genuine accident or a purposeful act, New Jersey’s new rules are a clear indication that it’s more important than ever to accurately complete payroll. However, there are a couple instances where someone who isn’t a payroll professional could make a mistake. These can include:

    • Incorrectly paying the wrong rate for overtime hours
    • Not applying different hourly rates for employees who perform two different types of tasks
    • Making a mistake when calling or faxing in payroll numbers

    It’s also important to consider the potential aftermath of a wage theft violation. Not only would you have to deal with the WTA-mandated penalties, word of that violation can spread to other employees. Even an accidental case of wage theft can create distrust among your employees and cause employees to be hypervigilant in the future. People are very sensitive about their pay, and an upset workforce can lead to less motivated employees and can even force good talent to leave for what they perceive to be a safer workplace.

    Protect Your Business Against Accidental Wage Theft and Other Payroll Issues

    Whether your business is based in New Jersey or somewhere else, it’s crucial to carefully record and maintain payroll documentation and employee hours. Not only will proper payroll management help protect your business against costly penalties, it’ll also ensure that your employees get exactly what they should each pay period.

    Of course, accurate payroll administration is easier said than done for someone without an experienced background. Managing payroll and filing taxes is a time-consuming process even when done accurately, which can take time away from other key business functions. Fortunately, GMS can help you manage your company’s payroll while you focus on growing your business.

    At GMS, we have the experts and processes in place to diligently process your payroll, manage and file taxes, and protect your business from costly compliance issues. We’ll do an HR analysis and identify new policies and procedures to help you protect your business from any current or future issues. Contact our New Jersey office or one of our other locations today about managing payroll or any other critical HR function for your business.

  • It’s already difficult to manage payroll for a small business, but it can get even trickier if you have employees who work out of state. Whether you have remote employees, live near a border, or have any other reason for an employee to complete their work in a different state, there are certain rules set by the Department of Labor (DOL) and other federal and state agencies that you need to follow when handling payroll for those workers.

    A map of the U.S. for out-of-state employees with certain payroll requirements.

    Who is Considered an Out-of-State Employee?

    Identifying an out-of-state employee is pretty simple – it’s an individual whose primary work is completed outside of the state where your business is registered. However, the tax implications of out-of-state employees aren’t quite so simple.

    An employee’s resident state is where that person makes their permanent home. On the flip side, a nonresident state is any state where that employee commutes to or spends some time in for work. While it may be easy to assume that out-of-state employees live and work remotely in their resident state, that’s not necessarily the case. Any of the following workers count as an out-of-state employee.

    • Someone who lives and works in a state outside of your business’ registered state
    • Someone who lives in the same state as your business, but travels to and works in another
    • Someone who lives outside of your business’ state, but travels to a separate state and works there

    For example, let’s say your business is registered in Ohio and you have an employee who lives and works remotely in Florida. That individual is an out-of-state employee. However, let’s pretend that the employee lives right by the Ohio border and rents office space in the Buckeye state. In this case, the employee would technically be an in-state employee since he or she completes his or her primary work in Ohio, despite it not being the resident state. There’s also the case that if your employee lives in Ohio, but travels to and works in Michigan, that person is an out-of-state employee. 

    In general, an employee whose primary work is not in your business’ state is essentially an out-of-state worker. This makes it important to ask your employer where they perform the majority of their work – the answer will play a big role come tax time.

    Key Differences When Handling Payroll for Out-of-State Employees

    Once you’ve identified which of your employees qualify as out-of-state workers, it’s time to handle your payroll. When it comes to out-of-state employees, there are three big steps you need to take.

    Register with any necessary state tax agencies

    While your business is already registered in your home state, that’s not enough for employees in other states. You’ll need to register your business with the tax agency of every state where any official employees complete their primary work, whether that’s one additional state or several. 

    You’ll also need to check with that tax agency to see if you’ll also need to register with that state’s labor and unemployment agency. If not, that state government may come calling at some point, and they won’t be pleased.

    Follow the local laws of applicable states

    While you may understand all of your state’s laws regarding payroll policies, outside regulations can create a whole new challenge. There are several different pay and labor laws that can impact your out-of-state employees’ paychecks. As such, it’s important to make sure you look into several different areas to see if you need to modify your payroll.

    Minimum wage

    If you have out-of-state employees who make minimum wage, you’ll need to make sure that you don’t just follow your own state’s rate. For example, an out-of-state employee who works in Michigan is entitled to $9.65 an hour, so that person won’t be pleased if you pay them at Ohio’s $8.70 rate.

    Certain states also have special rules aside from flat rates or have plans to escalate rates over time. South Carolina has no state minimum wage law, but employers that fall under the Fair Labor Standards Act are required to use the federal rate of $7.25. New Jersey plans to increase its rate each year until it hits $15 per hour in 2026. If you have an employee in another state, you’ll need to pay close attention to the DOL’s updated list of minimum wage laws to make sure you don’t miss a special rule or accidentally get caught paying an old rate.

    Pay frequency

    Depending on where your employee works, he or she may have a different payday than the workers in your state. Certain states have set requirements on how often you should pay employees, while others give owners leeway into setting paydays, whether it’s weekly, monthly, or some other option. The DOL tracks each state’s payday requirements, including if employers need to provide written notice or seek permission for certain pay periods.

    Overtime

    There are states that simply observe the federal overtime rules, but others apply their own laws that can add an extra wrinkle to your payroll. Some states like California have daily overtime laws that kick in when employees work more than 12 hours in a day. Others may set different weekly hour requirements. In general, the DOL notes that if state and federal rules conflict with each other “the employee is entitled to overtime according to the higher standard.” Regardless, you’ll want to check with any applicable state labor office to get a definitive answer on your obligations.

    Workers’ compensation and disability insurance

    Like the other considerations, you’ll need to check with your employee’s state to see if it has any notable differences in purchasing workers’ compensation. Texas is the only state where workers’ compensation is optional, but other states can have some disparities from your local requirements. Some states, such as Ohio, require you to purchase insurance from a monopolistic state fund. Other states ramp up the penalties for not carrying workers’ compensation. Either way, check in with the official state organization to make sure your out-of-state employees are covered.

    There are also some locations that add some payroll requirements for disability insurance. Five total states require you to withhold state disability insurance from paychecks, which means you need to factor that into your calculations if you have an employee who works in the following places.

    • California
    • Hawaii
    • New Jersey
    • New York
    • Hawaii

    Paycheck delivery

    While the Fair Labor Standards Act (FLSA) requires that employers keep accurate records of every employee’s hours and wages, it does not require you to provide those employees with pay stubs. However, certain states have different standards for how employers need to deliver pay information. Depending on location, states may:

    • Have no requirements about providing pay information statements to employees.
    • Require employers to provide or furnish a statement of pay information that each employee can at least access electronically. The majority of states fall under this group.
    • Require employers to provide written or printed pay statements and give employees the ability to print electronic statements.
    • Give employees a chance to opt out of a paperless pay program and receive paper pay stubs.
    • Allow employees to opt-in to a paperless pay system if an employer wishes to offer one.

    In addition to paystubs, states can have differing rules on when you need to provide an employee’s final paycheck when he or she leaves or is terminated. As such, you’ll want to look up those terms if an out-of-state employee is no longer with your company.

    Withhold taxes based on your employee’s work location

    In addition to workers’ compensation, overtime, and other key considerations, withholding taxes plays a major part in managing payroll. Depending on where employees work, you may need to withhold state and local income taxes from their paychecks if it’s required in your employee’s city or county. 

    As you’d expect, your withholding responsibilities depend on where your employee works. Seven states don’t have income taxes or only have them on dividend and interest income. As such, you wouldn’t need to withhold income taxes for an out-of-state employee who works in Florida or any of the other six states. As a bonus, you also won’t need to register with the tax agencies for states where you don’t withhold income tax.

    There are also 16 states that require employers to withhold local taxes in addition to income taxes. As such, you’ll need to research and withhold both taxes from paycheck based on that state’s rates.

    Reciprocal states

    If that doesn’t sound tricky enough, some states have tax reciprocity. Essentially, reciprocal states have agreements in place with other specific states that allow employers to withhold taxes based on the state of residence instead of where an employee works. As such, an employee can give you a reciprocal withholding certificate if they wish to request you withhold taxes for their home state instead of the work state if both locations have an agreement in place.

    Here’s a breakdown of existing reciprocal tax agreements, listed by an employee’s home state in bold. (Note: People who work in the District of Columbia can live in any state) 

    • Illinois – Iowa, Kentucky, Michigan, Wisconsin
    • Indiana – Kentucky, Michigan, Ohio, Pennsylvania
    • Iowa – Illinois
    • Kentucky – Illinois, Indiana, Michigan, Ohio, Wisconsin, West Virginia
    • Maryland – District of Columbia, Kentucky, Maryland, Pennsylvania, West Virginia
    • Michigan – Illinois, Indiana, Kentucky, Minnesota, Ohio, Wisconsin
    • Minnesota – Michigan, North Dakota
    • Montana – North Dakota
    • New Jersey – Pennsylvania
    • North Dakota – Minnesota, Montana
    • Pennsylvania – Indiana, Maryland, New Jersey, Ohio, Virginia, West Virginia
    • Ohio – Indiana, Kentucky, Michigan, Pennsylvania, West Virginia
    • Virginia – District of Columbia, Kentucky, Maryland, Pennsylvania, West Virginia
    • Wisconsin – Illinois, Indiana, Kentucky, Michigan
    • West Virginia – Kentucky, Maryland, Ohio, Pennsylvania 

    Feeling Overwhelmed? Simplify Your Payroll with GMS

    Whether you need to plan for out-of-state employees or simply need to manage payroll for your in-state office, the process is a lot of hard work. There’s also the issue that even after investing a lot of time in payroll, a simple mistake or two can lead to upset employees and non-compliance issues with various federal and state agencies.

    If you’re fed up with the time and stress involved with managing payroll, GMS can help. As a PEO, our experts can manage your company’s payroll, decreasing your workload and liabilities so you can focus on growing your business instead of calculating paycheck deductions.

    Ready to free up your calendar while streamlining critical HR functions? Contact us today to talk to one of our experts about your company’s HR needs.

  • After years of proposed changes to overtime laws, the Department of Labor (DOL)’s new updates finally went into effect at the beginning of 2020. The new salary levels make roughly 1.3 million more workers eligible for overtime pay. This news means business owners across the country may have some work to do to keep up with these changes.

    While the new standard salary level is a notable difference, it’s not the only change the DOL made. The department also revised rules for highly-compensated employees, regulations on overtime pay calculations, and other crucial details. To help, we broke down exactly what the DOL changed to help you know where your business stands and what you should do next.

    A clock tracking time for employees now eligible for overtime and papers documenting business numbers like regular rate calculations.

    Which Employees are Now Eligible for Overtime?

    Currently, the Fair Labor Standards Act sets the salary threshold for overtime at $35,568, which equates to $684 per week. Previously, the threshold was $23,660, or $455 per week. Those employees who meet the requirements set by the DOL are entitled to earn overtime pay for any hours worked past 40 in a given week. The pay for those extra hours is set at one-and-a-half times that employee’s standard rate of pay, which is the same as before. 

    In addition, highly compensated employees must now earn at least $107,432 ($684 of which must be paid weekly as either a salary or fee) instead of the old rate of $100,000. The new rules also maintain that employers can count annual (or more frequent) nondiscretionary bonuses and incentive payments as up to 10 percent of the minimum salary threshold.

    This salary threshold does not apply to all employees, however. The new rules still provide overtime protections to blue-collar workers, which means they are eligible for overtime even if they make more than $684 per week. Similarly, white-collar employees still do not receive these same overtime protections as long as they meet certain criteria for exemption. 

    In addition to meeting the new salary threshold, white-collar employees are considered exempt based on the duties they perform and if they’re paid a predetermined, fixed salary that is not subject to reduction. There were no changes to the preexisting duties tests, so owners can use the same criteria for exemption as in the past. For a detailed breakdown of those exact duties, check out our post on navigating white-collar exemptions.

    What Applies to Regular Rate Calculations for Overtime?

    Once you identify which employees are eligible for overtime pay, there’s still the matter of having to pay them for their extra hours. However, it’s not always easy to identify what affects an employee’s regular rate of pay.

    The FLSA identifies an employee’s “regular rate” as the rate that the employee is paid per hour. This doesn’t mean that the employee needs to be compensated on an hourly basis. Instead, it’s simply a calculation of how much the worker makes over the course of an hour compared to his or her salary, commission, and other compensation for all non-overtime hours worked in a workweek. As such, it’s relatively simple to calculate an employee whose compensation consists of only hourly pay – multiply that employee’s total hourly rate by the number of overtime hours worked.

    However, these calculations are much more complicated once you factor in other forms of compensation. The FLSA identifies that the rate should cover compensation that “include(s) all remuneration for employment paid to, or on behalf of, the employee,” such as bonuses, commissions and other forms of compensation. The DOL’s final rule added a list of exclusions that do not apply to overtime pay to address the confusion over what is considered part of the regular rate of pay. Per the DOL, these exclusions include:

    • The cost of providing certain parking benefits, wellness programs, onsite specialist treatment, gym access/fitness classes, employee discounts on retail goods and services, certain tuition benefits (whether paid to an employee, an education provider, or a student-loan program), and adoption assistance
    • Payments for unused paid leave, including paid sick leave or paid time off
    • Payments of certain penalties required under state and local scheduling laws
    • Reimbursed expenses including cellphone plans, credentialing exam fees, organization membership dues, and travel, even if not incurred “solely” for the employer’s benefit; and clarifies that reimbursements that do not exceed the maximum travel reimbursement under the Federal Travel Regulation System or the optional IRS substantiation amounts for travel expenses are per se “reasonable payments”
    • Certain sign-on bonuses and longevity bonuses
    • The cost of office coffee and snacks to employees as gifts
    • Discretionary bonuses, by clarifying that the label given a bonus does not determine whether it is discretionary and providing additional examples 
    • Contributions to benefit plans for accidents, unemployment, legal services, or other events that could cause future financial hardship or expense

    What Should an Owner Do About the New Overtime Rules?

    While some of the exact details have changed since the initial plans to update the overtime rules were announced back in March of 2019, our advice remains largely the same as it was that spring. First, you’ll need to evaluate your employees and identify who is now eligible for overtime and how much overtime you expect them to work (if any). If you do have employees who will now earn overtime, you’ll need to decide how you want to handle these new costs:

    • Pay newly-eligible employees overtime pay for the extra hours they accrue
    • Limit employees to 40 hours per week to prevent them from earning overtime
    • Determine how much certain employees would make in expected overtime and bump their pay to above the salary threshold if that ends up being less costly
    • Adjust salaries for new employees to account for expected overtime costs

    Each of these options has its own benefits and drawbacks, so deciding which route is best for your company largely depends on you and your workforce. Regardless of your decision, you’ll need to make sure that whatever you do ensures that your business is compliant with the new overtime rules so that you don’t open yourself up to thousands of dollars in fines and other potential penalties.

    How Can I Stay Ahead of New Regulations?

    The new overtime rules are just another major change that forces business owners to change how they manage their business. Unfortunately, you don’t always have the time or knowhow to keep up with new regulations. Fortunately, GMS can help you claim your time back and protect your business.

    As a premier PEO, GMS has the HR experts necessary to help you plan for the future and stay compliant with current laws. Our integrated HR system helps us take care of the administrative burden of payroll management, benefits administration, and other crucial human resources tasks for you so you have the time you need to focus on growing your business.

    Ready to stay ahead of new regulations and ease your administrative burden? Contact us today to talk to one of our experts about how we can strengthen your business.